Bellevue Medtech & Services

World stocks (MSCI World Net Index +6.0%) surged in May, recovering their losses from the preceding month (-3.9%) and then some. A temporary truce between the US and China, reducing reciprocal tariffs by 115% for a period of 90 days, and the strong fourth-quarter results reported by US companies gave the market a much-needed boost. US tech stocks bounced back strongly (Nasdaq 100 +9.2%) after experiencing heavy selling in the wake of tariff conflicts.

The healthcare sector (MSCI World Healthcare Net -3.6%), which is more defensive and sensitive to government policy than tech stocks, was a performance laggard as market sentiment generally shifted to a risk-on and cyclical growth stance. News flow on US federal action to lower drug prices and possible legislative changes weighed on pharmaceutical companies and US health insurers.

Medtech stocks (MSCI World Healthcare Equipment & Supplies Net +1.4%) and the Bellevue Medtech & Services Fund (+0.8%) clearly outperformed the broader healthcare sector. There are two main factors for their outperformance: First, medtech is growing faster than the overall healthcare industry, and second, medtech products have received less scrutiny from policymakers than, for example, drug products. Passive investors pulled cash out of the entire healthcare sector in May, which prevented an even better performance by medtech, but these outflows are likely to be an only short-term, temporary effect.

Innovative and well-managed medtech names such as Intuitive Surgical (+7.1%), Boston Scientific (+2.4%), Stryker (+2.4%) and Abbott (+2.2%) made solid gains. Quarterly earnings from TransMedics (+38.2%), Insulet (+28.9%), Dexcom (+20.3%) and Veeva (+19.8%) beat expectations. Investors had taken a cautious stance in the run-up to their announcements, so the excellent earnings reports led to a strong countermove. Globus (-17.5%), Becton Dickinson (-16.6%), Cooper (-16.4%), Coloplast (-16.4%) and Alcon (-10.9%) weighed on performance. Becton Dickinson reported disappointing quarterly results due to declining sales in China and cuts in research funding at the US National Institute of Health (NIH). Cooper and Alcon were unable to beat investor expectations. Growth in the contact lens market appears to have hit a temporary soft patch.

The performance of healthcare services providers (5.7% weighting) was mixed. Shares of the leading US hospital chain HCA (+10.6%) made good gains, while the shares of the US health insurers UnitedHealth (-26.6%), Humana (-11.1%), Elevance (-8.7%), Cigna (-6.8%), Molina (-6.7%) and Centene (-5.6%) traded lower. UnitedHealth dragged the entire sector down in the previous month when it issued a profit warning and it again weighed on the entire sector performance during the month under review after reporting a change in CEO and suspending its guidance. We do not see any systemic problems in the US health insurance market. On the contrary, it appears that UnitedHealth had acquired many new members through an overly ambitious growth strategy whose care utilization was higher than expected and not adequately covered by the attractive premiums UnitedHealth had offered. All performance data is in EUR / B shares.

In view of the very strong Q1 earnings announcements from medtech companies and their guidance for 2025 and based on our latest talks with company executives, we expect procedure volume growth rates will remain at high levels in 2025.

The approval and subsequent launch of relevant new products will continue to bolster sales growth, too. 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. We expect sector pricing power to remain above historical levels in 2025, too. Margins should continue to widen thanks to the above-average sales growth and a wave of new product launches with high margins.

In the healthcare services space, we believe hospital operators, health tech companies and US health insurers have considerable upside potential. Hospitals should benefit from high patient volumes, higher prices, and only moderately higher personnel costs. We expect health insurers to report solid member growth and, in 2026, to operate with significantly better margins in their Medicare Advantage and Medicaid business.

Furthermore, there are already signs that M&A activity is gaining momentum after the appointment of a business-friendly director for the US antitrust authority and large-cap companies are clearly ready to use their strong balance sheets to drive external growth. Today's attractive valuation levels are enticing too. The anticipated large-scale shift of investor assets out of stocks that had made strong gains during the previous year is another factor that favors the Bellevue Medtech & Services (Lux) Fund.