Bellevue AI Health

The US economy remained robust during the past month despite scattered signs of a potential slowdown. The July jobs report was better than expected, but the figures for the previous month were revised sharply lower. Data on core inflation came in below expectations, and short- and long-term inflation expectations ticked down. Meanwhile, President Trump’s announcements of trade deals with the EU, Japan, and South Korea brought some calm to the stock market.

Large-cap indexes such as the MSCI World (+1.3%), the S&P 500 (+2.2%), and the Nasdaq 100 (+2.4%) closed the month higher, but the healthcare sector was unable to keep pace with the overall upward trend because of weakness in the health insurance, pharmaceutical, and medtech subsectors and closed -3.0% lower. The Bellevue AI Health Fund (-2.5%) performed slightly better than its benchmark.

Biopharma (52.7% weighting at the end of the month) contributed -0.7% to absolute performance and had a neutral impact in relative terms. The US Government demanded that several major pharmaceutical and biotech companies cut drug prices within 60 days within the scope of a proposed MFN pricing model. This news worried generalist investors but not specialized investors like us, because congressional approval is required for MFN pricing to take effect, and we don’t think that is likely to happen. Positive contributors to performance in this segment included AstraZeneca (+7.9%), Johnson & Johnson (+7.8%), and Amgen (+5.7%), while Novo Nordisk (-30.6%), Eli Lilly (-5.1%), and Novartis (-4.3%) detracted. AstraZeneca reported better-than-expected sales and earnings growth that pleased investors. Key products such as its oral cancer treatments Tagrisso, Calquence, Lynparza, and Truqap clearly exceeded expectations. Novo Nordisk disappointed investors after issuing a profit warning and cutting its sales growth guidance range for 2025 to 8%-14% (from 13%-21%) and EBIT growth range to 10%-16% (from 16%-24%), mainly due to weaker US sales of Wegovy and Ozempic.

Medtech (29.9% weighting) contributed -0.3% to absolute performance and -0.1% to relative performance. IQVIA (+17.9%), Thermo Fisher Scientific (+15.3%), and EssilorLuxottica (+8.7%) were the top performers. All three reported better-than-expected quarterly results and raised their guidance for 2025. EssilorLuxottica’s sales growth was boosted by smart Ray-Ban Meta glasses, whose sales rose more than 200% during the first half of the year. Align Technology (-31.9%), Intuitive Surgical (-11.5%), and Abbott (-6.8%) were performance detractors. Placements of Intuitive Surgical’s total surgical robot systems were slightly lower than expected, although unit sales of its latest generation da Vinci 5 system were better than expected – a factor that we believe will shape the company’s business development 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.

Healthcare services (6.9% weighting) contributed -1.6% to absolute fund performance but a positive +0.5% to relative performance. Performance drivers included Ramsay Health Care (+3.4%) and Sonic Healthcare (+0.9%), while Elevance Health (-27.2%), UnitedHealth (-20.0%), and Omada Health (-4.3%) detracted. The quarterly reports of US health insurers such as UnitedHealth and Elevance Health were overshadowed by sharply higher treatment costs, which can largely be traced to aging baby boomers and elevated risks in the Medicaid business. Premiums are expected to increase next year, however, which should lead to higher margins from 2026 onward.

The fund’s tech exposure (6.9%), which includes companies from both the healthcare and tech sectors, contributed +0.2% to the fund’s absolute and relative performance. Oracle (+16.3%), Nvidia (+12.6%), and Microsoft (+7.3%) made positive contributions to performance, while Waystar (-9.5%), Qualcomm (-7.8%), and Veeva Systems (-1.3%) detracted from performance. Oracle announced several major cloud service contracts, including one that could generate more than USD 30 bn in annual sales from FY 2028 onward.

All performance data in US dollars/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.

Medications are already being developed more quickly and with better rates of success, 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.