Bellevue Medtech & Services (CH)

Despite rising oil prices and unexpectedly high core inflation, the yield on 10-year US Treasuries fell by 40 bps to 4.9% in October. The decline was driven by losses in AI-related stocks and weaker-than-expected US labor market data.

The broad equity market declined 2.1%, weighed down by a sharp sell-off in AI-driven technology stocks. The healthcare sector gained 8.4%, supported by biopharma, healthcare services and medtech, with biopharma accounting for approximately 70% of the sector's performance. The Bellevue Medtech & Services fund gained 7.9%, outperforming its benchmark (+7.6%). Medtech stocks contributed 3.6% to fund performance, while healthcare services providers contributed 4.6%.
McKesson (+15.0%), HCA Healthcare (+9.5%) and Veeva Systems (+8.2%) made positive contributions to performance, while Medline (-8.6%) detracted. McKesson benefited from the extension of its pharmaceutical distribution agreement with CVS Health. Medline came under pressure after announcing a major bed recall with estimated costs of up to USD 220 mn.

US health insurance stocks advanced across the board and made positive contributions to performance: UnitedHealth gained 9.4%, Centene 8.8%, Cigna 8.3%, Humana 7.5%, Elevance Health 6.6% and CVS Health 4.7%. Improved Star Ratings (quality ratings) under the Medicare Advantage program provided support, as higher ratings can lead to increased bonus payments. The rating of Humana's largest Medicare Advantage contract improved particularly significantly. CVS also benefited from better ratings at its health insurance subsidiary Aetna. UnitedHealth's quarterly results provided an additional boost: Lower medical costs helped the company beat earnings expectations and raise its earnings guidance for 2026.

Medtech stocks likely benefited from good quarterly results and growing expectations of a Democratic victory in the midterm elections. Investors associated such an outcome with stronger support for hospitals and the Medicaid and Obamacare health insurance programs. EssilorLuxottica (+22.9%), Medtronic (+10.4%), Abbott (+6.7%) and Intuitive Surgical (+4.9%) made positive contributions to performance, while Dexcom (-5.9%) and Boston Scientific (-5.1%) detracted. EssilorLuxottica reported strong sales growth in its core business and AI-powered glasses despite weaker consumer sentiment. Outside the reporting period, Medtronic (+13.8%) completed the spin-off of its diabetes business MiniMed in the third quarter of 2026. Following cautious comments on procedure volume trends in the second quarter, Intuitive Surgical largely met analyst expectations in the third quarter and confirmed its full-year guidance. Dexcom lost its contract with US pharmacy chain CVS in October. Competitor Abbott reported disappointing third-quarter results in its diabetes business and lowered its guidance for the coming quarters.

Danaher (+3.5%) and Thermo Fisher (+1.9%) also advanced following good quarterly results, although their gains were more modest as the positive results had already been largely priced in.

All performance data in CHF/AA shares.

We see considerable upside potential among healthcare services providers, particularly hospital operators and US health insurers. Hospitals should benefit from consistently high patient volumes and only moderately rising personnel costs. We expect profit margins at health insurers to recover in 2027 and 2028, particularly in Medicare Advantage and Medicaid. Persistently high market interest rates could provide additional support for earnings growth.

Based on the third-quarter reports published so far by medtech companies and our discussions with numerous management teams, we expect another year of robust growth in surgical procedure volumes in 2027. Economies of scale and refunds of US tariffs should also support solid earnings growth.

The approval and launch of major new products should continue to support sales growth in the medtech sector and stabilize valuations. Examples include Abbott's Volt PFA catheter, Medtronic's Affera and Boston Scientific's Farapulse, the robotic surgical systems da Vinci 5 from Intuitive Surgical, Hugo from Medtronic and Ottava from Johnson & Johnson, as well as Medtronic's Symplicity Spyral catheter. Numerous clinical data readouts and new reimbursement policies should not only strengthen investor confidence but also boost sales over the medium term.