Bellevue Medtech & Services

World stocks (MSCI World Net Index -3.9%) traded sharply lower in April. The import tariffs introduced by Donald Trump rattled the investment community because accurate projections of their impact on business activity and global economic growth were hard to make. Last month was therefore characterized by high market volatility. Early in the month, following Trump's tariff announcement, stock markets nosedived more than 10% but they bounced back impressively from their lows by the end of the month, although the major US equity index (S&P 500 -5.4%) still closed the month significantly lower. The medtech sector as a whole (MSCI World Healthcare Equipment & Supplies Net -5.2%) and the Bellevue Medtech & Services Fund (-5.5%) closed broadly in line with the US stock market.

Much more information about the potential impact of US import tariffs policy became available over the course of the month. Many of the large-cap medtech companies published excellent 1Q results and were also able to quantify the potential impact of US import tariffs. In most cases, it appears that any tariff-related impact will be offset by the better-than-expected course of business, proactive cost-cutting measures, and the weakness of the US dollar (in the case of US medtech companies).

Innovative and well-managed medtech companies such as Penumbra (+4.3%), Edwards Lifesciences (-0.8%), Intuitive Surgical (-0.8%), Boston Scientific (-2.9%) and Abbott (-5.7%) reported better-than-expected quarterly results. Boston Scientific revised its full-year guidance significantly higher, while Penumbra, Edwards and Abbott reiterated their earlier guidance. Intuitive Surgical mentioned some headwinds in its China business, but the news that its significant manufacturing footprint in Mexico, where it makes instruments and accessories (= 80%+ of consolidated sales), is exempt from the new US tariffs thanks to the USMCA agreement was cheered by investors. Performance in April was squeezed by Becton Dickinson (-13.9%), which sold off on disappointing quarterly results, and Insulet (-8.5%), which unexpectedly announced a change in CEO.

The performance of healthcare services providers (6.2% weighting) was mixed. In the US health insurance segment, Cigna (-1.6%), Molina (-5.5%), Humana (-5.6%), Centene (-6.1%), Elevance (-7.9%) traded more or less in line with the broader market, but UnitedHealth (-25.2%) plunged in the wake of its first-quarter earnings announcement. Although UnitedHealth reported lower-than-expected medical service costs for the first quarter, the company revised its full-year EPS forecast for 2025 12% lower. Management attributed this on the one hand to significantly higher care activity levels within its Medicare Advantage (MA) business towards the end of the first quarter and, on the other hand, to much lower-than-expected earnings from its OptumHealth unit due to inaccurate patient risk assessments and consequently lower reimbursement payments. We believe UnitedHealth can successfully address both challenges as the year progresses. Thanks to the increase in government reimbursement rates for Medicare Advantage plans 2026, the currently strong demand for medical care should be offset by higher insurance premiums. UnitedHealth also confirmed its long-term earnings growth target of 13-16%. Furthermore, all of the above-mentioned companies generate their profits exclusively in the US and would therefore not be affected in any negative way by tariff action.

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, healthcare technology 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 significantly higher profit margins in Medicare Advantage and Medicaid business lines. Continued high US Treasury yields could also have an accretive effect on earnings.

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.