Bellevue Sustainable Healthcare (Lux)

Most stock markets showed a positive development in July. The global MSCI World equity index advanced 3.4% (in USD). The healthcare sector was unable to keep up with the broader market and the MSCI World Health Care Index ended the month with a gain of 1.3%. The Bellevue Sustainable Healthcare (Lux) Fund outperformed its direct benchmark and closed July 2.7% higher (I shares).

On the US macro front, the Fed raised its rates by another quarter point in July, the consumer price index ticked lower, and quarterly GDP growth was surprisingly strong at 2.4%. The ECB also raised its key lending rate, in a widely anticipated move. Overall inflation is pointing in the right direction in most regions and there is a general consensus that the rate-hiking cycle will soon come to an end. Healthcare companies continue to face an uphill struggle during this late stage of the cycle – buyers are currently focused on big tech and cyclical stocks – but we have detected a gradual weakening of the fundamental headwinds in every subsector. From a regional perspective, the Chinese stocks in the portfolio delivered improved returns during the past month. This reflected to some extent a rebound following weakness in these stocks during the previous months, as well as fundamental news: investors cheered both Wuxi Biologics' (+18.0%) plans to spin off its antibody-drug conjugate business and the latest quarterly figures released by Wuxi Apptec (+18.3%). Generics producer Hikma was marked up (+11.7%) in the wake of a competitor’s woes: a tornado heavily damaged a Pfizer facility in North Carolina that makes sterile injectable medicines. In this oligopolistic market, an incident like this automatically translates into a greater market share for the other players. There haven't been any big surprises in the earnings announcements that have so far been published by portfolio companies. Quarterly results from surgical robot manufacturer Intuitive Surgical (-5.1%) received a rather muted response from investors. Although its reported growth rates (sales +15%, earnings per share +24%) beat official consensus expectations, the stock to traded lower because of even higher investor expectation, and because management made some cautious statements about growth trends in robot-assisted bariatric surgeries. Lonza’s H1 2023 results were good but its shares came under some pressure too (-2.5%) because of management’s cautious guidance for the remainder of the year.

Reported results from MCOs have generally been better than expected, which comes as a surprise after several companies expressed words of caution around the middle of the quarter. The Fund is underweight MCOs versus bench, but it does hold – Molina (+1.1%) and Humana (+2.2%).
 

Bellevue's rule-based investment approach, which has been successfully implemented since 2007 and is also mapped by the Adamant Global Healthcare Index, serves as the basis for the fund. A universe with around 700 stocks​ ​is compiled from a global pool with over 4000 listed healthcare stocks based on a preselection. As an additional step compared to the conventional methodology, ESG risks of these 700 investable stocks are identified, which could affect the economic value of a company. Here we rely on the longstanding expertise of our research partner Sustainalytics.

In order to get into the fund portfolio, the companies must meet the following criteria: Appropriate ESG risk profile (best-in-class approach), not involved in severe ESG-relevant controversies and comply with the ten principles of the UN Global Compact. In the case of controversial business areas and practices, revenue thresholds are defined for inclusion. The results of the ESG filter application demonstrate that around 40-50% of the titles meet our strict sustainability requirements. The proven factor analysis is then carried out according to four quantitative and four qualitative parameters. The objective here is to select companies that are inexpensive, have strong growth and have an exceptional competitive position so that they can maintain their leading position also in the future.

The analysis results in a portfolio structure consisting of the 40 most sustainable stocks in the healthcare industry, ten of them per region (Western Europe, North America, Japan / Oceania, emerging markets). The application of the eight factors in the past has typically led to a focus on mid cap stocks and an underweight position in pharma and the North America region relative to the MSCI World Healthcare Index. The rebalancing takes place every six months.