Bellevue Medtech & Services (CH)

US core inflation data published in October came in lower than anticipated despite the markup on import tariffs. Meanwhile the ADP Employment Report revealed more signs of weakness in the US labor market. The Fed cut its benchmark lending rate by 25 bps but sent mixed signals about a December cut.

Stocks advanced 3.2% over the month. The healthcare sector was an outperformer, returning +4.3% month on month, driven by pharma, life sciences tools, and biotech stocks. Pfizer and the US government reached an agreement on most-favored-nation (MFN) pricing for its drug products. This was the first such agreement to date, and it gave the entire sector a boost. Medtech and services companies (+2.3%) also traded higher on the news of this agreement but trailed the overall sector performance. The Bellevue Medtech & Services Fund (+2.7%) outperformed its benchmark during the month under review. Medtech names accounted for the bulk of the portfolio gains (+2.4%), while healthcare services contributed +0.3%.

HCA Healthcare (+9.1%) and McKesson (+6.3%) were performance drivers. HCA Healthcare beat consensus revenue and profit estimates, and management raised its guidance for 2025 as a whole.

Most of the US health insurers in the portfolio closed the month in the green, but their overall impact on fund performance was slightly negative. Humana (+8.2%), CVS Health (+5.7%), Centene (+0.3%), and UnitedHealth (+0.1%) made positive contributions, while Molina (-19.1%), Cigna (-14.2%), and Elevance (-0.7%) detracted.

CVS, Centene, and UnitedHealth traded higher after publishing their Q3 results. All three companies raised their guidance for 2025 and reported stable or better-than-expected cost trends, which reflected their good leadership and improved visibility regarding a recovery in margins in 2026. Molina, in contrast, had to lower its guidance because of higher costs in its Medicaid and Marketplace (Obamacare) business lines, while Cigna shares were hit by falling membership numbers and rising costs in its individual and family health plans.

Fast-growing, innovative, well-managed medtech names such as Intuitive Surgical (+20.9%), Edwards Lifesciences (+7.2%), and Boston Scientific (+4.4%) were strong performance drivers. Intuitive’s Q3 results beat the consensus growth estimate by a wide margin, and management guidance for 2025 was revised up. Edwards Lifesciences published very positive clinical data on its transcatheter mitral and tricuspid valve therapies at the Transcatheter Cardiovascular Therapeutics (TCT) conference in San Francisco, in addition to its good quarterly results.

Dexcom (-12.5%), Abbott (-6.2%), and Stryker (-2.5%) detracted from performance. Investors were disappointed with Dexcom’s more cautious growth forecast for 2026, Abbott reported weaker diagnostics sales in China and weaker baby formula sales, and Stryker did not quite meet high investor expectations.
In the life sciences tools space, Thermo Fisher (+18.4%) and Danaher (+9.9%) made positive contributions to absolute and relative performance. Their Q3 results beat expectations, and both also benefited from the significant improvement in investor sentiment toward the healthcare sector following the deal between Pfizer and the Trump Administration.

All performance data in CHF/AA shares.

Healthcare services providers, hospital operators in particular, as well as health tech companies and US health insurers offer significant upside potential. Hospital operators should benefit from high patient volumes and an only moderate increase in payroll costs. We expect solid member growth at health insurers in 2026 in addition to higher margins, particularly in Medicare Advantage and Medicaid business lines. Continued high US Treasury yields could also have an accretive effect on earnings.

Looking back on the pleasing Q3 results of medtech companies and our numerous discussions with medtech executives during October, we expect sustained solid volume growth in surgical procedures throughout Q4 2025. The resulting economies of scale along with the weak USD and lower-than-threatened tariff rates are expected to give EPS growth in the medtech sector an additional boost going forward.

Moreover, the approval and launch of major new products is expected to generate additional sales growth for medtech companies, with a likewise positive impact on their valuations. Examples here are Abbott’s Lingo, Libre Rio, Libre 3, TriClip, and AVEIR products, Boston Scientific’s Farapulse PFA system and Watchman FLX Pro device, and the new da Vinci 5 surgical robot from Intuitive Surgical.