Bellevue Medtech & Services (CH)

Economic data from the US was a bit stronger than expected in May. Both jobs data and consumer confidence readings were better than expected, while core inflation remained stable despite increased tariff costs. The reduction in tariffs that the US and China negotiated in Geneva also helped to ease the tension in financial markets.

Buoyed by these developments, the broad stock market closed the month with a gain of +5.9%. Healthcare stocks were unable to follow in its footsteps, however, and closed with a negative return of +3.6% due to the weak performance of pharmaceutical, biotech, health insurance and life sciences tools stocks. The medtech & services sector also traded lower, down -3.0% over the month, and the Bellevue Medtech & Services Fund lagged its benchmark with a monthly performance of -3.8%. Healthcare services had a negative impact of -5.0% on fund performance, while medtech stocks made a positive contribution of +1.2%.

Veeva (+19.7%), a leading provider of cloud-based software solutions to make drug development and commercialization more efficient, and HCA Healthcare (+10.5%), the largest hospital chain in the US, made positive contributions to the fund’s absolute and relative performance. Veeva surprised investors with better-than-expected first-quarter sales and it upped its guidance for FY 2026 sales.

UnitedHealth (-26.6%), the largest health insurer in the US, weighed on performance once again, this time on news that its CEO Sir Andrew Witty was being replaced effective immediately by Chairman Steve Hemsley. The company also withdrew its earnings guidance for 2025 less than four weeks after lowering it by 12%. We know Steve Hemsley well and consider him an excellent choice to lead the company: He already successfully served as UnitedHealth's CEO from 2006 to 2017 and is expected to significantly improve the company’s business performance from 2026 onwards. We expect new guidance for 2025 and an initial outlook for 2026 when Q2 earnings are released at the end of July, which will likely be greeted by investors. UnitedHealth's problems are in our view company-specific, but other health insurers such as Humana (-11.1%), Elevance (-8.7%) and Cigna (-6.9%) were sold off, too, and also detracted from portfolio performance.

Shares of innovative large-cap medtech names such as Intuitive Surgical (+7.1%), Edwards Lifesciences (+3.6%), Boston Scientific (+2.3%), Stryker (+2.3%) and Abbott (+2.2%) benefited from the US-China tariff deal. Smaller companies such as Insulet (+28.8%) and Dexcom (+20.2%) also had a positive impact on fund performance. Insulet's reported sales topped expectations by a wide margin thanks to strong new patient growth and it also raised its sales forecast for 2025. Dexcom beat investor sales expectations but left its 2025 forecast unchanged.

Becton Dickinson (-16.7%), Cooper (-16.4%), Alcon (-10.9%) und Medtronic (-2.1%) weighed on performance. The quarterly results released by Becton, Cooper and Alcon fell short of investor expectations. Medtronic’s earnings guidance for the 2026 financial year also failed to impress investors and its plans to spin-off its diabetes business could dilute earnings for shareholders.

In the life sciences tools space, Thermo Fisher (-6.1%) and Danaher (-4.7%) detracted.

All performance data is in CHF / AA shares.

We see considerable upside potential in the healthcare services segment, specifically for hospital operators, health tech companies and US health insurers. 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.
Based on the better-than-expected quarterly reports of medtech companies and our numerous talks with company executives in May, we expect strong growth in surgical procedure volumes for the current year, which could even increase slightly from the current levels as the year progresses. The resulting operating leverage and the weak US dollar should cushion the negative impact of tariffs on earnings per share growth.
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 believe the sector's pricing power will remain above historical levels in 2025, too. Margins are expected to improve in the wake of the fast sales growth.