Bellevue Diversified Healthcare

Global equity markets started 2026 on a positive footing, with the MSCI World Index rising 2.2% in January, supported by resilient macro data and improving earnings momentum. The healthcare sector also advanced, though it underperformed the broader market, with the MSCI World Health Care Index up 1.1%. The Bellevue Diversified Healthcare (Lux) Fund – I shares delivered a positive absolute return of 0.4% (USD), although it underperformed its benchmark by 67 bps. The underperformance was driven by underweight positioning in value biopharma which performed strongly in the month, along with weakness in key medtech and healthcare services names.

Performance across healthcare subsectors was mixed in January. Pharmaceuticals (+4.2%) and biotechnology (+1.6%) outperformed, supported by improved policy visibility, renewed confidence in large-cap biopharma, and ongoing M&A expectations in SMID-cap names. In contrast, healthcare services (-3.8%), medtech (-2.0%), and life science tools (-1.0%) lagged amid cautious guidance and continued reimbursement concerns. Regionally, Europe led (+5.0%), followed by Emerging Markets (+3.5%) and Asia (+3.2%), while US healthcare underperformed (-0.4%).

Within the fund, the healthcare services (-34 bps) and medtech (-27 bps) subsectors were the largest relative detractors, while pharmaceuticals (+22 bps) contributed positively. In terms of single stocks, the top-five positive relative contributors to the fund’s performance were Sandoz (+9% absolute performance in the month; positive biosimilar dynamics), Johnson & Johnson (+10%; solid Q4 results and guidance), BioNtech (+19%; pipeline catalysts coming into view), Teva Pharmaceuticals (9%; positive Q4 results and 2026 guidance), and UCB (+8%; emerging pipeline). The largest negative contributor was UnitedHealth (Medicare Advantage reimbursement disappoints), which declined 13% in the month.

Sector news flow during the month was dominated by early 2026 commentary at the J.P. Morgan Healthcare Conference, the full-year earnings season, and continued policy discussions around drug pricing and Medicare Advantage. M&A activity remained a key theme, reinforcing investor focus on pipeline depth and strategic value.

The healthcare sector is entering a new and durable phase of growth following several years of structural and policy-related headwinds. Policy and regulatory uncertainty has materially eased, valuations remain close to decade lows, and investor confidence is gradually returning as fundamentals stabilise across biopharma. Despite contributing approximately 18% of US GDP, healthcare equities still represent only around 10% of the S&P 500, highlighting a persistent disconnect between economic relevance and market representation. Key industry overhangs – pricing reform, FDA restructuring, and the implementation of the Inflation Reduction Act – have largely cleared or proven manageable.

Within this recovery, biotechnology has emerged as a primary growth engine, transitioning from binary R&D outcomes toward cash-generative, launch-driven business models supported by premium pricing, leaner cost structures, and disciplined capital allocation. At the same time, large pharmaceutical companies face a significant biologic patent cliff between 2029 and 2032 and hold strong balance sheets with over USD 200 bn in aggregate acquisition capacity, underpinning a multi-year M&A cycle. Investor participation continues to broaden, with specialist investors remaining highly engaged and generalist investors selectively returning via large-cap value, structural growth, and commercial-stage biotechnology opportunities.

Against this backdrop, the fund maintains a selective, high-conviction investment approach with diversified exposure across healthcare subsectors.