Bellevue Diversified Healthcare

Global equities were volatile in April 2025, although the MSCI World Index ended the month in positive territory (+0.9%). The S&P 500 fared worse, ending the month down 0.7%, despite a significant second-half of the month rally. Maximum fear regarding US trade tariffs peaked early in the month shortly after “Liberation Day” (April 2nd). Delay and walking-back of the tariffs helped drive a reflex rally through the middle of the month. This was supported by largely positive Q1 earnings and guidance updates from key corporates. Most soft- and hard-measures (consumer sentiment data; Q1 GDP) of US economic have started to show signs of slowdown, although the employment data remain robust. 

Healthcare (MSCI World Healthcare) underperformed global equities (MSCI World) in April by 278 bps (after outperforming by 213 bps in March). Multiple sector-specific risks emerged during the month. For biopharma, we have seen three risks emerge. While initially exempt from tariffs, the Trump Administration initiated a Section 232 investigation on drugs, citing national security risks. Through the month we have also seen increasing uncertainty around drug approvals at the FDA given significant layoffs and evolving policy. Thirdly, towards the end of the month, the most-favored-nation (MFN) policy has remerged in law makers commentary.

Despite the above risks, pharmaceuticals (+0.6%) was the best performing healthcare GICs industry in the month. The leading companies highlighted their broad geographic manufacturing footprint and robust margins during earning calls, which helped the stocks towards the end of the month, but we wait to see what is next from a drug tariff or pricing perspective. Similarly to pharmaceuticals, larger-cap biotech performed solidly in the month (NBI; +0.4%) driven by Q1 earnings and relative safety, but we note further significant underperformance for the higher-growth smaller companies (XBI Biotech ETF; -4.9%).

Medtech (0.0%) rebounded rapidly from tariff concerns earlier in the month driven by positive Q1 sales, continued strong utilization, and reassuring 2025 guidance. The leading medtech companies did a good job of framing the potential impact from tariffs, in our view. However there were some concerns, with the likes of GE Healthcare (-12.8%) and Becton Dickinson (-9.6%) particularly exposed. Life science tools (-6.0%) underperformed in the month, with a relatively high potential exposure to US-China tariffs and dependency on NIH spending. Healthcare services (-8.0%) was the worst performing healthcare GICs industry, driven by weak results from bellwether UnitedHealth.

From a geographical point of view, Asian healthcare (+4.9%) performed best in April, followed by emerging markets (+3.0%) and Europe (+1.9%). US healthcare (-3.6%) was disappointing in the month, driven by the aforementioned risks.

The Bellevue Diversified Healthcare Fund (I-shares: -2.2%, in USD) underperformed its healthcare index benchmark by 30 bps, largely due to a tilt towards innovative companies.

Despite the volatility, global healthcare remains a relative safe-haven in a difficult equity market so far in 2025 (+3.1% ytd; vs -0.9% for global equities, to end April). We expect the uncertainty and volatility in equity markets to continue. After a number of years of de-rating, healthcare valuations remain below global equities, and largely below their historical averages. Therefore, unlike some sectors/themes, healthcare has entered this difficult period with valuations already near trough levels.

The number of potential policy outcomes are numerous, which adds risk to the sector and broader equities. In healthcare, high gross margins and diversified manufacturing bases should help protect the bottom-line from tariffs or drug pricing changes, although significant uncertainty remains. Should the US economy enter a slowdown or recession, it is important to remember that inelastic demand for healthcare products and services ensures that it is an attractive investment in turbulent times.

We remain focused on high-conviction names from a bottom-up perspective, and see a broad exposure to subsectors, style and geography as appropriate from an risk perspective.