Bellevue Sustainable Healthcare

Global equity markets were positive in July, with the MSCI World Index gaining 0.5%. Healthcare outperformed the broader market, with the MSCI World Health Care Index up 1.4% in the month. Against this backdrop, the Bellevue Sustainable Healthcare (Lux) Fund (I shares) gained 0.4%, underperforming its benchmark by 105 bp. The fund’s higher exposure to structural and disruptive growth was a negative contributor in the month.

Global equities reported a modest gain in July, though beneath the surface the drivers shifted materially. The Federal Reserve held its target range at 3.5-3.75%, but an unusual three-way dissent and the absence of forward guidance left the September decision unclear, pushing the 10-year Treasury yield to 4.7% and the 30-year above 5.2%, its highest since 2007. Trade policy re-emerged as a live risk after the administration responded to the Supreme Court's rejection of its earlier tariff regime with fresh 10-12.5% levies on some 60 economies. A late-month rally in mega-cap technology and semiconductors carried the index into positive territory. Healthcare sector performance over the month was driven by Life Science Tools (+8.0%), Healthcare IT (+6.8%), Medtech (+4.8%), Healthcare Services (+2.0%), and Biotech (+0.8%), while Pharma (-0.4%) detracted. Within healthcare, geographic performance was led by Emerging Markets (+5.1%), Asia (+4.1%), and the US (+2.1%), while Europe (-0.9%) lagged.

The month's defining event was the failure of AstraZeneca and Ionis' eplontersen (Wainua) in the Phase III CARDIO-TTRansform trial in ATTR cardiomyopathy, sending Ionis down 23% and lifting BridgeBio 15% due to reduced competition. Roche's divarasib beat both Bristol Myers' adagrasib and Amgen's sotorasib in KRAS-mutant lung cancer. Merck won early approval for Lipfendra (enlicitide), the first once-daily oral PCSK9 inhibitor. Second-quarter results favored medtech and life science tools. Dexcom rose 8.5% and Thermo Fisher 9%, while Elevance fell 9% as attrition from the ACA exchanges emerged as the dominant US demand theme. M&A activity was unusually heavy, led by Vertex's USD 10 bn acquisition of Crinetics. On policy, CMS's draft CY2027 outpatient rule cut 340B reimbursement sharply, and the administration proposed tariffs on imported generic drugs rising to 100% from 2028.

Top absolute performers in the fund included Dexcom (+23.9%; strong Q2 with revenue +20% in constant currency), Glaukos (+19.3%; record Q2 sales up approximately 50% year-on-year), and Samsung Biologics (+15.8%; Q2 sales +30% year-on-year).

Top relative positive contributors included Dexcom (overweight; +42 bp; strong Q2 with revenue +20% in constant currency), Thermo Fisher (overweight; +19 bp; Q2 beat and raised core growth guidance), and Roche (overweight; +18 bp; divarasib Phase III win in KRAS-mutant lung cancer).

Top relative negative contributors included Sandoz (overweight; -24 bp; proposed US generic drug tariffs), Ionis (overweight; -22 bp; CARDIO-TTRansform failure, impairing the eplontersen royalty stream), and Abbott (underweight; -21 bp; Q2 beat with medical devices +8.4% organic).

The near-term backdrop remains uncertain, with the Federal Reserve offering little forward guidance, long-dated yields at multi-year highs and trade policy unresolved. Healthcare's defensive characteristics should provide relative resilience if conditions deteriorate.

The structural case for healthcare remains compelling. Regulatory uncertainty has materially eased, valuations remain near decade lows, and biopharma fundamentals continue to stabilize. Healthcare contributes approximately 18% of US GDP yet only approximately 10% of the S&P 500, a disconnect we expect to narrow over time.

Biotechnology continues to shift toward cash-generative, launch-driven models, while large-cap pharma faces a biologic patent cliff between 2029 and 2032 and holds over USD 200 bn in acquisition capacity, underpinning a multi-year M&A cycle.

The fund maintains a sustainable, high-conviction, diversified approach, positioned to capture the structural recovery and near-term catalyst-driven opportunities.