Bellevue Sustainable 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 Sustainable Healthcare (Lux) Fund (I shares) delivered a positive absolute return of 0.2% (USD), although it underperformed its benchmark by 94 bps. The underperformance was driven by an underweight position in value biopharma, which performed strongly during 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 medtech (-30 bps) subsector was the largest relative detractor, while biotechnology (+10 bps) contributed most positively. In terms of single-stocks, the top-five positive contributors to the fund performance were UnitedHealth (underweight position; -13% absolute performance for the month, driven by our ESG process), Sandoz (overweight; +9%; positive commentary on biosimilar dynamics), UCB (overweight; +8%; emerging pipeline), Teva Pharmaceuticals (overweight; +9%; positive Q4 results and 2026 guidance), and BioNtech (overweight; +19%; pipeline catalysts coming into view). The largest negative relative contributors were Johnson & Johnson (underweight; +10%; driven by our ESG process), and Abbott Laboratories (overweight; -12%; weaker results).

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, which contributed to the aforementioned drawdown in UnitedHealth). 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 sustainable, high-conviction strategy with diversified exposure across healthcare subsectors, emphasizing biotechnology and life science tools as core overweight positions to target structural and cyclical return potential.