Bellevue Medtech & Services (CH)

The Bellevue Medtech & Services (CH) Fund gave up some ground in August (-2.1%) but still performed better than the broader healthcare industry (-3.8%) and roughly matched the performance of its benchmark (-1.7%) and the global stock market (-1.9%). Healthcare services contributed 0.1% to the fund's monthly performance while medtech’s contribution was a negative 2.2%.

Most of the US health insurance stocks in the portfolio traded higher. Cigna (+5.4%), Molina (+5.4%), Elevance (+4.1%) and Humana (+2.4%) made positive contributions to the fund's performance and only two stocks had a slightly negative effect, UnitedHealth (-1.9%) and Centene (-1.1%). Cigna easily beat consensus expectations with its reported second-quarter profits thanks to a sharp drop in COVID-19 treatment costs and management consequently raised its full-year profit guidance. Molina won a managed Medicaid tender to deliver services to more than one million insured Californians in Los Angeles County, beating Centene. “Managed Medicaid” is a public health insurance plan for lower-income residents.

Digital health companies Veeva Systems (-8.7%) and Inspire Medical (-6.2%) were performance detractors, which reflects profit-taking in the wake of their strong performance during the previous month, although Inspire Medical reported better-than-expected 2Q results and raised its top-line guidance for 2022.

Fast-growing medical technology companies such as Shockwave Medical (+44.1%), Penumbra (+20.6%), Axonics (+14.1%), Insulet (+5.6%) and Dexcom (+2.6%) made positive contributions to the fund's absolute and relative performance. Shockwave's second-quarter sales beat expectations by more than 12% and the company revised its full-year targets sharply higher. In addition, FDA approval of Shockwave's L6 intravascular lithotripsy catheter came sooner than expected. Penumbra easily beat investors’ low expectations for 2Q results. Axonics beat analyst expectations for second-quarter sales by 15% and raised its top-line growth forecast for 2022 from 32% to 40%.

Large-cap medtechs Sonova (-24.1%), Intuitive Surgical (-8.5%), Edwards Lifesciences  (-8.2%), Alcon (-13.9%) and Abbott (-3.5%) had a negative impact on the fund's performance during the month under review. Sonova issued a profit warning and lowered its sales growth forecast for the current fiscal year by 2%. The market for hearing aids was said to be recovering more slowly in some countries than the company had expected. Alcon disappointed investors when it reported lower-than-expected sales in Vision Care, a key business segment that includes contact lenses. Shares of Edwards Lifesciences and Abbott were dragged down after Medtronic (-2.7%) reported disappointing quarterly results, which, however, we believe reflects company-specific factors.

Life sciences tools specialist Thermo Fisher (-6.7%) and Danaher (-5.2%) were weak due to profit taking.

All data in CHF unless otherwise stated.

In the healthcare services segment, we believe US health insurers offer the most upside potential. Key value drivers here are the rapidly growing number of members and the fast premium growth in Medicare Advantage plans among the 65 and older population, a high level of resistance to inflation thanks to contracts that shield health insurers from an increase in healthcare costs, and earnings accretion thanks to rising short- and medium-term bond yields.

In the medical technology space, we expect to see a strong rebound in surgical procedures thanks to a sharp decline in COVID-related hospitalizations and high levels of population immunity. This should more than offset the impact of higher materials and logistics costs. We additionally expect numerous approvals and market launches of relevant products for diabetes and structural heart disease.