Bellevue AI Health (Lux)

A strong jobs report in March and increasing consumer spending indicated that the US economy remains on solid ground. Investors continue to expect the Fed to announce three rate cuts in 2024 and engineer a soft landing without triggering a recession, which will have a positive impact on company earnings.

Major large-cap stock indexes advanced in March, with the S&P 500 (+3.2%), MSCI World (+3.2%) and NASDAQ 100 (+1.2%) showing roughly similar returns as the small-cap Russell 2000 Index (+3.6%).

The broad healthcare sector as measured by the MSCI World Healthcare Index (+2.4%) also delivered a positive return in March, slightly below that of the total market and slightly better than the tech sector. The Bellevue AI Health Fund (+2.2%) showed another good performance in March. It returned 8.0% in the first quarter of 2024, which was better than its benchmark’s quarterly performance (+7.5%).

Biopharma (58.1% weighting at the end of the month) contributed 1.3% to the fund’s absolute performance. Novo Nordisk (+8.4%), Astra Zeneca (+7.0%), Merck & Co. (+4.4%) and Eli Lilly (+3.2%) made positive contributions to performance, while Recursion Pharmaceuticals (-25.9%) and Zoetis (-14.7%) were performance detractors. Phase I data for amycretin, an oral weight loss drug from Novo Nordisk, showed a very competitive efficacy profile, having led to a 13% reduction in body weight after just 12 weeks of treatment with a similar side effect profile as the products already in the market. AstraZeneca announced the acquisition of Fusion Pharmaceuticals for USD 2 bn. Fusion is a developer of radioconjugates to treat cancer and AstraZeneca believes that Fusion's approach has many advantages compared to traditional radiotherapy, such as less damage to healthy cells. Recursion Pharmaceuticals, which specializes in proprietary AI-enabled tools to accelerate drug discovery processes, fell short of consensus sales expectations because of a delayed milestone payment.

Investments in medtech stocks (24.0%) delivered another good performance and contributed 0.7% to absolute performance, driven by positive management commentary at investor conferences and by new product approvals. Large-cap names such as Dexcom (+20.5%), Intuitive Surgical (+3.5%), Boston Scientific (+3.4%) and Stryker (+2.7%) made positive contributions. The FDA approved Dexcom's Stelo, an innovative wearable glucose biosensor designed for people living with type 2 diabetes not on insulin, a market that numbers 25 million people in the US alone. It is the first over-the-counter glucose sensor to reach the market and can be worn for up to 15 days before requiring a replacement. Abbott (-4.2%) detracted from performance on news that a court ordered Reckitt Benckiser to pay USD 60 mn to the mother of a premature baby who died after being fed the company's baby formula.

Healthcare services (11.1%) contributed 0.2% to absolute performance but had a negative impact of 0.3% on relative performance. Health insurer Elevance (+3.8%), an overweight stock in the portfolio, made positive comments about business during the first quarter at an investor conference and confirmed its profit guidance for 2024. The fund's relative performance was hurt by Cigna (+8.5%) and HCA Healthcare (+7.0%), which are not in its portfolio.

Tech exposure (5.8%), which includes tech companies from both the healthcare and IT industries, contributed 0.4% to absolute and relative performance. Nvidia (+14.2%), Oracle (+12.5%) and Qualcomm (+7.3%) were the best performers. At Nvidia's 2024 GTC (GPU Technology Conference) for AI developers, Nvidia unveiled its latest Blackwell chip architecture, which is four times faster, uses four times less power and is less than twice as expensive as its predecessor, the “Grace Hopper” superchip. This new chip will enable biopharma companies, for example, to train their AI models even faster and more efficiently. All performance data in USD / B shares.

The rapid development of generative artificial intelligence (GenAI) is ushering in an unprecedented technology-driven transformation that ranks right next to other key milestones such as the Internet, cloud computing and the smartphone. GenAI is creating tremendous opportunities for businesses and investors, especially in the health sector. According to a number of studies, the health sector will be one of the industries that will benefit the most from the deployment of GenAI. This forecast is mainly based on the considerable potential for efficiency gains in healthcare systems, on the large, readily available amounts of data in healthcare systems, and on the considerable financial resources available for healthcare needs.

Already today medications are being developed more quickly and with better rates of success, for example, new diagnostic and treatment methods are producing better clinical outcomes, and GenAI is helping medical professionals make better and more informed decisions. We focus on healthcare companies that have made GenAI a core element of their business strategy and that are investing substantial resources in this technology to gain a lasting competitive advantage and achieve superior value growth. The technology risk here is more calculable than in other industries because healthcare is such a heavily regulated industry.