Bellevue Medtech & Services (Lux)

Global stocks ended the month of May in slightly negative territory (MSCI World Net -1.6%), while the Euro Stoxx 50 (+1.3%) and Germany’s Dax index (+2.1%) delivered positive returns. The divergent monthly performance can be traced to the US dollar’s weakness versus the euro (-1.8%) as well as the persisting selling pressure in growth stocks, which also explains why medtech stocks (MSCI World Healthcare Equipment & Supplies -2.6%) and the Bellevue Medtech & Services Fund (-3.5%) lost ground during the month.

In the medical technology sector, stocks in the diabetes segment closed sharply lower. Insulin pump manufacturer Insulet’s (-12.2%) first time full year guidance undershot consensus expectations by one percentage point for the first time. The company also announced that Jim Hollingshead will succeed Shacy Petrovic as CEO effective June 1. Of greater relevance for the market moves were rumors that Dexcom (-28.3%) was interested in taking over Insulet, which dragged down the entire diabetes segment, including Tandem Diabetes (-30.5%). A Dexcom-Insulet tie-up would of course unleash significant cost synergies, but the financial market view was that any such transaction would be an admission by Dexcom's management that growth prospects were limited. Towards the end of the month, Dexcom officially announced that it was not engaged in any active discussions regarding a merger transaction “at this time,” but that statement was unable to completely dispel investor uncertainty. Dexcom's shares were also pressured by the announcement that the US FDA had approved the FreeStyle Libre 3, a competing product from Abbott (+1.7%), the largest position in the fund's portfolio. We will be attending the ADA diabetes conference in the US in June, where we will discuss this matter in detail. The latest clinical trial data will also be presented at the conference.

In the small and mid cap growth space, Procept BioRobotics (+8.1%), Shockwave Medical (+6.8%) and Straumann (+4.3%) made positive contributions to fund performance, while Inspire Medical (-15.5%) and Abiomed (-9.6%) detracted from performance.

US health insurers had mixed returns in May. Cigna (+6.9%) and Humana (+0.4%) advanced, while Molina (-9.0%) and UnitedHealth (-4.0%) declined. Cigna beat consensus expectations for first-quarter profits thanks to a lower medical cost ratio and an increase in net investment income. The healthcare services provider, which specializes in commercial health insurance plans and prescription drug programs (pharmacy benefit manager), also raised its profit outlook for 2022. Molina, a health insurer focused on Medicaid plans for low-income households, came under pressure. Investors are worried about unfavorable developments in the Medicaid risk pool when the coronavirus pandemic is over, which would squeeze the company’s profit margins. However, Molina has a successful management team that has demonstrated in the past that it can defend and grow its margins even in a challenging environment. All performance data is in EUR / B shares.

The outlook for the 2022 investment year in the medtech & services sector is attractive. New cases and hospitalizations in key medtech & services markets (North America, Europe and Japan) plunged after Omicron became the dominant strain of COVID-19. We believe that high population immunity levels will usher in a strong rebound in elective medical procedures during 2022. The sector’s risk-return profile is enticing for many investors. Regardless of when the pandemic and geopolitical situation returns to normal, the sector-specific structural growth factors such as rising life expectancy and high rates of innovation will sustain the medtech & services sector's above-average growth versus the overall economy and power its high rates of profit growth. Sector valuations are moderate and that offers opportunities, not just for investors; we also expect takeover activity to pick up because the valuation multiples of many young and growing companies have declined so much.

The Bellevue Medtech & Services Fund invests in the entire healthcare market except for the drug developers. As a fully adequate healthcare investment vehicle, the fund aims to generate a significantly higher return than a traditional healthcare fund but with a comparable risk profile. 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. This and the additional growth from non-emergency treatments that had to be postponed during the pandemic create attractive entry points for investors.