Bellevue Medtech & Services (CH)

The general picture of the US economy remained robust in July, although there were some signs of a slowdown. Jobs data came in better than expected, but the previous month’s figures were revised sharply lower. Core inflation was slightly lower than expected; short- and long-term inflation expectations were likewise lower than expected. President Trump announced tariff deals with the European Union, Japan, and South Korea in July, which was well received by investors.

The total market closed the month with a pleasing gain of +3.6%. The healthcare sector was unable to keep pace with the broader market, closing -0.7% lower month-on-month due to the weak performance of health insurance, pharmaceutical, and medtech stocks. The medtech and services sector declined -5.2%, and the Bellevue Medtech & Services Fund lagged the benchmark index with a decline of -7.0%. This underperformance can be largely attributed to healthcare service stocks (-5.8%). Medtech stocks delivered a negative contribution of -1.2%.

Veeva Systems (+0.9%), a provider of cloud-based software solutions for more efficient drug development and commercialization, made a positive contribution to absolute and relative performance, while HCA Healthcare (-5.5%), the largest hospital chain in the US, detracted. Veeva announced that pharma giant Merck & Co. had decided to migrate to its Vault CRM platform. HCA Healthcare reported better-than-expected earnings for the second quarter and raised its guidance for 2025, but its lack of commentary on the potential negative fallout from the Big Beautiful Bill on its business through Medicaid and exchange channels from 2028 on disappointed investors.

The performance of US health insurers was mixed: while Humana (+4.5%) made positive contributions to performance, Centene (-50.9%), Elevance Health (-25.6%), UnitedHealth (-18.2%), and Cigna (-17.3%) detracted.

Insurers’ earnings announcements for the second quarter were clearly impacted by sharply higher treatment costs. This was evident in their Medicare Advantage business, providing health insurance for Americans 65 and older. We presume that the baby boomer generation in the 70-to-75 age bracket is a major factor for the increase in these costs. At the same time, we have seen an increase in costs in their Medicaid business, which serves low-income households. Risk profiles in this business segment have deteriorated in the aftermath of the coronavirus pandemic because many of the healthier people that had been enrolled in Medicaid are earning more money now. Health insurers will be increasing their Medicare Advantage premium rates effective January 1, 2026, which will help to improve their margins during the course of the year. Adjustments to Medicaid payment rates are announced with a time lag of 9 to 12 months.

Humana was one of the few health insurers in the US whose rates were already adequately conservative, having adjusted them after the negative developments it encountered during 2023.

Large-cap medtech companies such as Medtronic (+5.9%), Edwards Lifesciences (+3.7%), Alcon (+2.3%), and Stryker (+1.5%) made positive contributions to performance. Edwards Lifesciences reported surprisingly strong Q2 results. The US federal agency CMS proposed national coverage of Medtronic’s Symplicity Spyral renal denervation catheter for the treatment of hypertension.

Intuitive Surgical (-9.4%) and Abbott (-4.7%) were performance detractors. Placements of Intuitive Surgical’s total surgical robot systems sales were slightly lower than expected, although unit sales of its latest generation da Vinci 5 system were better than expected – a factor that is likely to have a greater positive impact on the company’s business going forward. Abbott lowered its 2025 sales growth guidance due to the sluggish recovery of its China business, but it is predicting strong sales and earnings-per-share (EPS) growth in 2026.

In the life sciences tools space, Thermo Fisher Scientific (+18.0%) and Danaher (+2.1%) made positive contributions to performance thanks to better-than-expected quarterly earnings and management guidance.

All performance data is in Swiss francs/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 strength of the quarterly reports released by medtech companies so far, we expect good growth in surgical procedure volumes throughout 2025. The resulting operating leverage, the weak US dollar, and lower-than-threatened tariff rates should have a positive impact on future EPS growth in the medtech sector.

Moreover, the approval and launch of major new products is expected to generate additional sales growth for medtech companies, with a likewise positive impact on their valuations. 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 robotic surgical system from Intuitive Surgical.