Bellevue Diversified Healthcare

Global equity markets were positive in July, with the MSCI World Index gaining 0.5%. Healthcare outperformed the broader market, with the MSCI World Health Care Index up 1.4% in the month. Against this backdrop, the Bellevue Diversified Healthcare (Lux) Fund (I shares gained) 0.4%, underperforming its benchmark by 107 bp. The fund’s higher exposure to structural and disruptive growth was a negative contributor in the month.

Global equities reported a modest gain in July, though beneath the surface the drivers shifted materially. The Federal Reserve held its target range at 3.5-3.75%, but an unusual three-way dissent and the absence of forward guidance left the September decision unclear, pushing the 10-year Treasury yield to 4.7% and the 30-year above 5.2%, its highest since 2007. Trade policy re-emerged as a live risk after the administration responded to the Supreme Court's rejection of its earlier tariff regime with fresh 10-12.5% levies on some 60 economies. A late-month rally in mega-cap technology and semiconductors carried the index into positive territory. Healthcare sector performance over the month was driven by Life Science Tools (+8.0%), Healthcare IT (+6.8%), Med-Tech (+4.8%), Healthcare Services (+2.0%), and Biotech (+0.8%), while Pharma (-0.4%) detraced. Within healthcare, geographic performance was led by Emerging Markets (+5.1%), Asia (+4.1%), and the US (+2.1%), while Europe (-0.9%) lagged.

The month's defining event was the failure of AstraZeneca and Ionis' eplontersen (Wainua) in the Phase III CARDIO-TTRansform trial in ATTR cardiomyopathy, sending Ionis down 23% and lifting BridgeBio 15% due to reduced competition. Second-quarter results strongly favored medtech and life science tools: Abbott rose 11% on broad-based device growth, Thermo Fisher 9%, Dexcom 8.5% on a 20% constant-currency revenue increase, and Glaukos reported record sales up 50% year-on-year. Against this, Intuitive Surgical fell 10% on decelerating procedure growth and Elevance dropped 9% as attrition from the ACA exchanges emerged as the dominant US demand theme. Merck won early approval for Lipfendra (enlicitide), the first once-daily oral PCSK9 inhibitor. M&A activity was unusually heavy, led by Vertex's USD10 bn purchase of Crinetics. On policy, CMS's draft CY2027 outpatient rule raised rates 2.4% but cut 340B reimbursement sharply.

Top absolute performers in the fund included Tenet Healthcare (+36.2%; Q2 EBITDA approximately 50% ahead of consensus), Dexcom (+23.9%; strong Q2 with revenue +20% in constant currency), and Glaukos (+19.3%; record Q2 sales up approximately 50% year-on-year).

Top relative positive contributors included Dexcom (overweight; +43 bp; strong Q2 with revenue +20% in constant currency), Thermo Fisher (overweight; +18 bp; Q2 beat and raised core growth guidance), and Alnylam (not invested; +15 bp; Q2 miss and FY TTR guidance cut). Top relative negative contributors included Sandoz (overweight; -23 bp; proposed US generic drug tariffs), Regeneron (not invested; -18 bp; Q2 beat of low underlying quality), and Abbott (underweight; -17 bp; Q2 beat with medical devices +8.4% organic).

The near-term backdrop remains uncertain, with the US-Iran ceasefire still pending ratification and interest rates expected to remain higher for longer. Despite this, equity markets have recovered significantly.

The structural case for healthcare remains intact and increasingly compelling. Regulatory uncertainty has materially eased, valuations remain near decade lows, and biopharma fundamentals continue to stabilize. Healthcare contributes approximately 18% of US GDP yet represents only around 10% of the S&P 500, a disconnect we expect to narrow over time.

Biotechnology continues to transition toward cash-generative, launch-driven business models, while large-cap pharma faces a biologic patent cliff between 2029 and 2032 and holds over USD 200 bn in acquisition capacity, underpinning a multi-year M&A cycle.

The fund maintains a high-conviction, diversified approach, positioned to capture the structural recovery and near-term catalyst-driven opportunities.