Blog: Paul and Brett’s Alpha August 2021

Paul Major, Brett Darke – Portfolio Manager

The monthly BBH factsheet and commentary is always thought provoking and elicits a wide range of responses and views, here at the Trust we thought it would be a good idea to make the portfolio management teams commentary available in form of  rolling 12 month blog, as always any comments and observations are welcome.

August 2021

 “To conquer fear is the beginning of wisdom”

Moving beyond the world of rational analysis, one cannot ignore the role that sentiment plays in market behaviour. Bull markets are driven by optimism about the future and bear markets are driven by fear. With this in mind, it does rather feel the diaphanous optimism of summer and the ‘great re-opening’ has now faded into the rear-view mirror.

Geopolitics and the Delta variant have seemingly tilted people toward a more negative mind-set: even a cursory delve into what passes for journalism these days could leave one thinking that a new, deadly COVID variant lurks around every corner and that the UK is fast returning to the winter of discontent due to a combination of Brits apparently loathing both hard work and anyone from Eastern Europe, leaving us critically short of workers in various key industries and supply chains.

If those two topics in the popular press don’t scare you or depress you enough, then they can talk about resurgent global jihad waiting to pounce from an Afghanistan that has recently returned to the Middle Ages or how we risk being consumed in global warming’s forest fires or drowned in its biblical floods. To cap it all, cheap and easy flights to the sun via a carefree trip through duty free seem to be a thing of the past. Tis indeed the end of days.

Perhaps none of this short-term risk really matters. As Keynes wittily observed: in the long-term, we are all dead. Nonetheless, we cannot help but feel there is a better way to pass the interregnum colloquially known as life in a slightly less morose state of mind; things are seldom as bleak as they seem at first glance, at least for those of us fortunate enough not to have woken up in a terrifying fundamentalist theonomy.

Cognitive dissonance

One of the many enjoyable aspects of this job is our frequent interactions with our investors. They are often kind enough to ask us for our opinions on health-related topics and it is clear that many of them are also scratching their heads trying to reconcile their lived experience with what is being said in the media.
Whilst we don’t have much more to say on the broader subject of seemingly preventable geo-political catastrophes, nor any brilliant insights on how to reverse global warming, we feel on relatively safer ground with respect to the economic outlook both here in the UK and more widely and the pandemic (can we even call it that anymore? Surely it now meets the definition of being endemic?

We have thus sought to lay out our opinions on the latter in the following pages. Since neither of us harbour any burning ambitions to work in the mainstream UK media, we are quite happy to point out that things really don’t seem all that bad if you, you know, try to stick to relevant facts.
So let us agree what the facts should be: the only thing that really matters in respect of this pandemic is the societal burden wrought by virally mediated morbidity and mortality. Everything else is just numbers or costs that arise from such morbidity or from attempts to prevent such morbidity.

We are thankfully no longer in a situation where thousands of people were at genuine risk of hospitalisation or death on a daily basis, and the problems and solutions that we face should be viewed in light of this very positive development. It’s not 2019, but it’s not spring 2020 either.

Re-painting the fourth wave

Perhaps the most pressing question people are wrestling with is: what does COVID’s fourth wave here in the UK look like? The presumption is that it will soon be upon us as the children go back to school, we all return to work venues and the winter closes in. Will there need to be another lockdown to “protect the NHS and save lives”?
The primary driver of the ‘next wave’ debate naturally relates to the culmination of normal winter pressures from respiratory diseases and their toll on the elderly, supercharged by COVID as Delta continues its march against an apparently waning level of efficacy from vaccines some 6-8 months after the administration of the second dose, plus the attendant fear that the next, more virulent strain is emerging somewhere.
To stymie the first of these risks, both the US and Israel have decided to offer booster jabs fairly widely to their elderly populations, much to the chagrin of the WHO, whose focus is on ensuring as many people in the world get jabbed as possible. Many epidemiologists agree with the WHO (as do we), arguing that unvaccinated populations are a reservoir for the establishment of new variants that could undo all the hard work of the initial vaccination cycle (i.e. the second risk described above).
There is a reason why recent variants of concern have arisen in places such as India, South Africa and Brazil. Columbia and Peru (and yes, we are ignoring the Kent variant and yes it originated in the Medway region). All jokes aside, the Isle of Sheppy really not that bad a place! The point still stands that poor places with high population density are the most likely hotspots for such outbreaks

The UK has been more cautious so far when it comes to embracing boosters for the wider population (so far limiting their recommendation to boost only the severely immunocompromised). Predictably, official silence on the subject of wider re-vaccination has allowed the more hysterical elements of the media to fill the information vacuum with howls of protest as the Government ‘vacillates’ once more, ‘putting us all at risk’ (or some such hyperbole).
Regular readers will know we never shy away from criticising those in power when we feel it appropriate to do so, but the UK does deserve some credit around its medical response to the pandemic and the UK Joint Committee on Vaccination and Immunisation (JCVI) deserve credit for resisting pressure from current and former ministers who should know better than to endorse boosters before scientific evidence on their usefulness and data on the need for them is ready, just because it would go down well with certain sections of the media or their followers. We will probably end up going down the route of offering boosters more widely, but there does not seem to be a need to rush into this.
Firstly, we have had the lowest Case Fatality Ratio (CFR) in Europe for some time now. Yes, we test more, which lowers the CFR (our much discussed denominator problem) but if we adjust for this, the UK still comes out rather well (and herein lies the crux of the problem of comparing between countries. Everyone defines things differently). Secondly, we continue to have the highest proportion of the adult population vaccinated versus our peer group (let’s ignore Malta and the like). We should be in good shape to reduce hospitalisations and deaths, as long as the vaccines continue to be effective.

Are the vaccines really beginning to wear off, as has been suggested? Figure 7 (from the ONS COVID dashboard) shows the number of hospitalisations per week in the critical 65 and over age groups. It is indexed data, with a value of 100 assigned to the 17th of January, which was the peak of cases in wave three.
Whilst cases in this age group have risen above the very, very low levels seen in March/April, they remain very far below the last peak and let us remember that the current dominant strain (Delta) has a much higher R0 and thus RE compared to the strain circulating back then (i.e. it is much easier to catch). If this non ‘apples to apples’ comparison is evidence of waning vaccine efficacy, then it is pretty weak evidence in our view. To our mind, it shows you that the existing vaccines are doing a good job in protecting the elderly from Delta.

The growth in cases from late June through early July appeared to follow the conventional pattern of a mounting fourth wave, but then it stalled, reversed and has now begun to climb again. The dip and recent raise is probably as much to do with the cessation and then re-commencement of the ludicrous over-testing of school children.
Regardless though, the pattern falls well outside (to the good) of any of the predictive models circulating before restrictions were lifted this summer (recall the worst case scenario estimates of 100,000 cases per day within weeks of the re-opening, with thousands of deaths following in their wake) and strongly supports the argument that vaccination has broken the link between infection and serious morbidity/mortality.
We are not saying that boosters are unnecessary; they could be of great use to some of the most vulnerable. However, it is a bit of stretch to suggest that we will all need jabs every six months and new vaccines for these jabs to cope with the latest variant of concern.

The Judean People’s Front

We get why people worry. They want COVID gone and they want to feel that their personal risk has been minimised as much as possible. We all hate what this pandemic has done, but let’s not turn on one another over ludicrous arguments about vaccinating children and “selfish” young people who won’t get jabbed, or the merits of vaccine passports.

At the risk of sounding tediously repetitive to our regular readers, the evidence that vaccination reduces transmission such that herd immunity was a realistic prospect was always weak and now, with Delta and its materially higher R0, it may be an unrealistic idea.
We think it is pretty fair to say that other people not being vaccinated does not materially increase your risk of catching COVID, or impact how sick you might get. Your decision to get vaccinated yourself does impact how sick you are likely to get and your risk of long COVID. You are doing this primarily for your own benefit, just like every other vaccine.

If other people don’t want to, then fine. That’s on them. We let people smoke, which is kind of crazy and don’t ban them from cancer treatment, so if people want to risk it without a vaccine then, at this stage in the rollout, when the majority are protected, then so be it.
Hanging out with infected people increases your risk of COVID. People unwittingly walking around with asymptomatic infections (many of whom are double jabbed by the way, cf. previous Factsheet comments regarding systemic versus mucosal immunity) increases your risk of catching COVID.
This is why vaccine passports make much less sense to us than lateral flow tests for attending mass gatherings. Vaccine passports seem like a stick to try to get more younger people jabbed, not a rational solution to the issue of curbing transmission across the wider population.

Morbidly curious

What should matter is how sick people get and these days, the general answer is “not very”, which is why we are not seeing thousands of hospitalisations and deaths per day anymore and why those models and their worst case scenarios were so wide of the mark. This is not to diminish the serious cases that do occur, but we need to look at the big picture here (i.e. population level data).

If we look at hospitalisations, they are rising, especially amongst the younger groups and the young thus now make up a greater proportion of hospitalisations as a consequence. Again though, no-one was really worrying about the young people six months ago and the same ONS data suggests that hospitalisations amongst the very young are still very low (Figure 8):

Another factor that cannot be ignored is the current behaviour of clinicians, whose job is as much about preventing disease as treating it. There is strong anecdotal evidence that the number of young people with pre-existing conditions being admitted to hospital on a precautionary basis after testing positive has risen. This is a good thing: perhaps now there are free beds again, why risk a scenario where COVID might become problematic for someone with severe asthma, for example? Admit the patient anyway and see what happens. There has been a marked rise in admissions of pregnant women after testing positive for COVID, but without this context it may be fallacious to simply compare the pattern of hospitalisations over time. It probably makes more sense to look at the proportion of people on ventilation for example (the numbers are rising, but are currently 60% lower than at the peaks of wave one in March 2020 and 75%lower than the peak of wave three in January 2021). As the data from the ONS in Figure 8 shows, there really is very little risk of severe morbidity and mortality for the very young, and we all need to remember this important point. Leading on from this, in a rational discussion, nobody would consider vaccinating anyone below the age of 18 because the risk/cost benefit simply wouldn’t stack up.

Again, this is the conclusion the “experts” at the JCVI have reached but some platitudinous plenipotentiary suggested we should let the 12 year olds decide for themselves: they are not old enough to vote or drive a car, but why not let them wrestle with the complexities of epidemiological risk/benefit? It does rather feel this ceased to be a rational debate some time ago.

Have we all had enough of experts?

What then will the coming months hold? Will Christmas be cancelled again?Will the schools shut? Honestly, we have no idea, but we can be certain of three things:

1.    The NHS will fall over this winter. It does every winter, so why should this one be any different, especially as the pandemic has reduced the total number of available beds due to physical and temporal distancing put in place to reduce nosocomial infection risks.
2.    The people least likely to see any of this coming currently reside in our Cabinet, and they have done more U-turns than a London cabbie so don’t accord any value to anything they say about lockdowns or anything else.
3.    The same people now in power have previously said that “we have all had enough of experts”, so the sort of objective analysis laid out here may be of little to no value in the end.

Many of you may not like what we have written and many more may disagree with the conclusions we have drawn, but you cannot argue with the data. Facts are facts and it is difficult not to conclude that this whole crisis would have played out much better if everyone was prepared to admit firstly there are some things we just don’t know, so we need to iterate our way to the correct decision through reasoned and dispassionate debate, and secondly that the situation is ever changing (and mostly for the better).

With this latter point in mind, we need to transition to accepting that COVID is here to stay and will become another life risk to be managed, like RSV, influenza and the other respiratory diseases that tragically cause sickness and death but that we accept as facts of life. Those at high risk from COVID would benefit from regular jabs, as we have for RSV and influenza, but these are offered without coercion.

It seems to us that COVID has become a populist lighting rod issue and the Government is in thrall to its perception of popular opinion, which is the reciprocal definition of true leadership; wasn’t it Boris’ hero Winston Churchill who said: “never let a good crisis go waste”? Appearing to save us all from ourselves is a fantastic way of staying in power and distracting from other things that might be going on in the background. With that in mind, we leave you with one of our favourite quotes, which is from former First Lady Rosalyn Carter:

“A leader takes people where they want to go. A great leader takes people where they don’t necessarily want to go, but ought to be.”

We always appreciate the opportunity to interact with our investors directly and you can submit questions regarding the Trust at any time via:

As ever, we will endeavour to respond in a timely fashion. We thank you for your ongoing support of BB Healthcare Trust and we hope that the coming months give us the opportunity to meet with many of you face to face once more.

Paul Major and Brett Darke