Bellevue Medtech & Services (Lux)

Global equity markets were fairly stable in April and closed the month virtually unchanged (MSCI World Net Index +0.3%). Macro topics such as a potential recession or credit crunch continue to hover over the market. Not surprisingly, then, the broad healthcare sector (MSCI World Healthcare Net +2.0%) showed a good relative performance, which can be traced to its low exposure to the economic cycle (being a non-cyclical industry) and low levels of debt. These positive factors are even more pronounced in the Bellevue Medtech & Services Fund (+4.8%), which advanced along with its benchmark (+5.1%). Besides the above-mentioned defensive qualities, outstanding first-quarter results drove medtech’s significant outperformance of the total stock market and the broader healthcare sector. Positive commentary from the physicians we spoke with at major medical conferences in March was confirmed in the top-line figures reported for the first quarter.

Medtech firms Intuitive Surgical (+16.2%), Medtronic (+11.2%), Abbott (+8.0%), Becton Dickinson (+5.2%), Edwards Lifesciences (+4.8%), Stryker (+3.4%) and Boston Scientific (+2.6%) made positive contributions to portfolio performance. First-quarter results from the large-cap and broadly diversified companies came in well above the projected top and bottom line numbers in some cases, which can be traced to a sharp upturn in surgical treatments, and these companies also raised their sales and profit guidance for 2023. The upturn in surgical procedures was fueled in part by a significant improvement in nursing staff levels, from which smaller companies such as Inspire Medical (+12.7%), Procept BioRobotics (+5.4%) and Ambu (+4.2%) also benefited. Shockwave Medical (+31.9%) jumped on rumors that Boston Scientific was considering a takeover bid. Shockwave is a developer of intravascular lithotripsy technology (IVL) used to treat patients with calcified peripheral and coronary blood vessels.

The monthly performance of US health insurers Molina (+9.7%), Humana (+7.7%), UnitedHealth (+2.6%), Elevance (+0.4%) and Cigna (-2.3%) was mostly positive. All US health insurers except for Cigna have already released their first-quarter results. Reported earnings were better than expected and management guidance for 2023 was increased across the board. This confirms our assumption that the management teams astutely factored a recovery in surgical treatments into the offered insurance premiums. Joe Biden's announcement that he would seek a second term portends less political risk for health insurers.

Life sciences tools companies Danaher (-7.4%) and Thermo Fisher (-5.1%) had a negative impact on performance. Danaher dialed back its 2023 growth forecast for its “bioprocessing” business due to the drop in demand from biotech and pharmaceutical companies. Thermo Fisher did not revise its sales forecast, but it too has been impacted by a drop in demand from drug manufacturers. All performance data is in EUR / B shares.

Our projection that medical procedures would bounce back in 2023 after 2 years of a severe corona-related slump appears to be correct. We additionally expect numerous important products for diabetes and structural heart disease to be approved and launched.

The sector’s risk-return profile is enticing for many investors. Moderate sector valuations spell opportunities, and not only for investors. We anticipate an upturn in M&A activity because the valuations of many promising, fast-growing companies have declined to much lower levels. If recession fears do prove to be accurate, historical data show that the fund's strategy has also produced good relative returns when markets are difficult.

The Medtech & Services Fund invests in the entire healthcare market except for the drug developers. The medtech & services sector is one of the stock market's most defensive sectors with sustainable outperformance potential and that is one reason for the unqualified success of our investment strategy. In contrast to pharmaceutical companies, medtech companies were challenged by the capacity bottlenecks at hospitals during the corona crisis. For the 2023 investment year, we expect growth in the medtech sector to be boosted by rising procedure volumes and also see catch-up potential in their stock prices, which is why we believe now is a good time to buy the sector.