Bellevue Digital Health

May was a strong month for global stocks (MSCI World Net Index +5.9%). A temporary truce between the US and China, reducing reciprocal tariffs by 115% for a period of 90 days, and the strong fourth-quarter results reported by US companies gave the market a much-needed boost. US tech stocks bounced back strongly (Nasdaq 100 +9.1%) after experiencing heavy selling in the wake of tariff conflicts.

The healthcare sector (MSCI World Healthcare Net -3.6%), which is more defensive and sensitive to government policy than tech stocks, was a performance laggard as market sentiment generally shifted to a risk-on and cyclical growth stance. News flow on US federal government action to lower drug prices and possible legislative changes weighed on pharmaceutical companies and US health insurers.

Due to its focus on healthcare firms with very fast growth rates beyond the drug-making universe (no exposure to pharmaceuticals or biotech), today’s stock market environment represents a “sweet spot” for the digital health subsector and the Bellevue Digital Health Fund (+7.0%), which also explains the strong portfolio performance.

19 of the 33 stocks in the fund's portfolio made a positive contribution to performance in the month under review, led by TransMedics (+38.2%), Insulet (+28.8%), Exact Sciences (+23.3%), Dexcom (+20.2%), Veeva (+19.7%) and Procept BioRobotics (+7.4%). Quarterly earnings reports beat investor expectations. Investors had taken a cautious stance in the run-up to their announcements, so the excellent earnings reports led to a strong countermove. TransMedics reported sequential quarterly sales growth again, after the slight qoq decline in the fourth quarter of 2024. After surprisingly replacing its CEO in the previous month, Insulet reported a very good set of Q1 results that proved that there were no hidden performance issues. Exact Sciences showed that its sales force is working efficiently again and that its profitability has improved. Veeva reassured investors worried about a possible slowdown in the sales growth of its CRM unit in the face of tougher competition and reported surprisingly good profit margins.

Globus Medical (-17.5%), Ambu Medical (-14.3%), Inspire Medical (-12.7%) and Penumbra (-8.8%) detracted from performance. Globus Medical reported disappointing Q1 results, but this was partly because of one-off effects that should fade away as the year progresses. Ambu Medical is exposed to increased competition in the US market from Chinese manufacturers of disposable endoscopes. Large quantities of these endoscopes were exported to the US before steep tariffs came into effect. We view this as a temporary stockpiling effect and the Chinese endoscopes are also inferior in terms of application scope and quality. All performance data is in USD / B shares.

Looking at the fundamentals, digital health companies are on a stable, above-average growth trajectory which is expected to be sustained throughout 2025. This scenario is supported by above-average growth in surgical procedure volumes and in hospital capital expenditure.

The approval and subsequent launch of relevant new products will continue to bolster sales growth, too. Examples here are the new da Vinci 5 robotic surgical system from Intuitive Surgical; Veeva's Vault CRM Suite for highly efficient marketing of medicines; Dexcom’s two continuous blood glucose sensors Stelo and G7; Procept BioRobotics' Hydros robotic system for removal of prostate tissue in males; Insulet's Omnipod 5 automated insulin delivery system; Penumbra's computer-assisted vacuum thrombectomy system Thunderbolt; and Globus Medical's Excelsius Flex, a surgical robotic navigation system.

We expect some tailwind for our investment solution in 2025: In addition to innovation as the key driver of value, other factors such as attractive valuation levels (price/sales multiples are close to historical lows), an anticipated increase in M&A and IPO activity, and a general repositioning of investor assets out of stocks that have made big gains and into top-quality stocks also speak in favor of an investment in the Bellevue Digital Health (Lux) Fund.