Bellevue Medtech & Services

The broad equity market performed positively in May and closed the month up 5.0%. Investors sought higher-risk assets despite the ongoing Iran conflict, resulting in significantly stronger performance from the US technology sector (Nasdaq 100), which gained 11.1%. More defensive sectors such as healthcare (+2.4%) underperformed, although the sector benefited from the strong performance of Eli Lilly (+19.0%), which contributed 1.9 percentage points to performance. The medtech sector (-2.8%) performed significantly weaker and was most affected by fund outflows due to the technology affinity of invested investors. The Bellevue Medtech & Services Fund (-2.5%) outperformed its benchmark, primarily due to the strong performance of US health insurers (services). As a result, both the absolute and relative valuation of the medtech sector currently stand at historically low levels.

As in the previous month, the sector heavyweights Boston Scientific (-15.8%), Medtronic (-8.4%), Intuitive Surgical (-6.8%) and Abbott (-5.3%) weighed on performance. Boston Scientific shares came under pressure after the company lowered its short-term expectations for its WATCHMAN business in the US. The reason is the ongoing weakness in standalone WATCHMAN procedures, which is attributed to capacity constraints as well as changing referral patterns among electrophysiologists and interventional cardiologists. The revised outlook primarily weighed on investor sentiment, while the reduction in annual revenue expectations amounted to less than 0.5%. Weakness in Boston Scientific also indirectly weighed on the share prices of other medtech companies.

Dexcom (+24.4%), LivaNova (+23.4%) and Edwards Lifesciences (+4.0%) contributed positively to portfolio performance. Dexcom gained significant value following a well-received Investor Day. Positive drivers included compelling long-term growth and margin targets, the entry of activist investor Elliott and an expansion of the share repurchase programme. LivaNova also performed well. The company exceeded expectations with its first-quarter results and raised its full-year revenue and earnings guidance. The life science tools companies Thermo Fisher (+3.3%) and Danaher (+2.6%) also contributed positively to performance. Thermo Fisher advanced after management confirmed its 2026 guidance at its Investor Day and expressed a more optimistic view on its pharma/biotech and CDMO businesses.

US health insurers delivered particularly strong performance: Humana (+29.8%), Centene (+11.5%), Elevance (+4.9%) and UnitedHealth (+3.1%), while Cigna (-4.1%) weighed on performance. US health insurers posted strong share price gains in May after UnitedHealth management confirmed, based on April data, that medical cost trends remained well under control. In addition, the company expressed confidence in its ability to gradually improve profitability over the coming years, particularly in its Medicare and Medicaid businesses. The second quarter remains the key test to determine whether the earnings power of health insurers is recovering sustainably. Despite the strong performance over the past two months, health insurer share prices continue to offer substantial upside potential and remain well below their previous highs.

All performance data in EUR/B shares.

In recent years, a gap has emerged within the medtech sector between very solid operational fundamentals and depressed valuation multiples. We expect this gap to begin closing. The withdrawal of misallocated capital has pushed valuations to historically low levels, creating a pronounced disconnect between market prices and intrinsic value. Following the reset of consensus estimates to more realistic levels, the non-cyclical and defensive profile of the medtech sector is regaining attractiveness.

There are also strong indications that M&A activity is set to accelerate significantly again and that large-cap companies will use their strong balance sheets to drive additional external growth. The most important long-term success factor remains the approval and launch of relevant new products, which should continue to support strong revenue growth.

We expect a significant margin recovery among US health insurers in 2026 and beyond, particularly in the Medicare Advantage segment. Persistently high interest rates could provide additional support to earnings growth. Investors have already begun to take advantage of attractive valuation levels for initial investments in this segment, in contrast to the medtech sector.