Bellevue Medtech & Services

Global stocks (MSCI World Net Index +4.3%) closed clearly higher in July, while European stocks (Euro Stoxx 50 +0.5%) edged only slightly higher. The broader healthcare sector (MSCI World Health Care Net Index –0.1%) lagged the market, mainly because of the drastic decline in US health insurer stocks (S&P Managed Health Care Sub Industry Index –20.6%) and pressure on pharma stocks in the face of the political uncertainty caused by the Trump administration (US tariffs and the highlighted most-favored-nation pricing model for drugs). Negative investor sentiment toward the healthcare sector in general was one of the reasons why the medtech sector (MSCI World Healthcare Equipment & Supplies Net Index –0.7%) was unable to deliver a positive return despite the release of strong Q2 results from major medtech names. Consequently, the medtech sector is now trading at a record-high valuation discount versus Wall Street and is valued almost as inexpensively as it was during the COVID-19 pandemic. The Bellevue Medtech & Services (Lux) Fund (–1.5%) was unable to outperform its benchmark during the month under review, which can largely be blamed on the weak performance of US health insurance stocks, although they only have a 4.1% weighting in the portfolio.

July marked the start of the reporting season. Q2 results from Edwards Lifesciences (+4.4%) and EssilorLuxottica (+11.9%) beat expectations. Growth in Edwards Lifesciences’ transcatheter aortic valve replacement (TAVR) business has picked up sooner than expected, and US tariffs have been scaled back, which prompted management to raise its full-year outlook. Despite the dip in consumer confidence, EssilorLuxottica has displayed resilience and reported better-than-expected sales growth, supported by sales of smart Ray-Ban Meta glasses, which were up by more than 200%. Becton, Dickinson and Company (+6.6%) did not publish quarterly results, but it surprisingly announced plans to merge its Biosciences and Diagnostics Solutions unit with life sciences tools specialist Waters. Hoya (+10.2%) initiated the process of spinning off its loss-making endoscopy business in July. Intuitive Surgical (–8.8%) weighed on portfolio performance, although its Q2 results were better than expected. Management’s outlook for surgical procedure growth remained below investors’ high expectations, however. Align Technology (–29.8%) failed to meet growth expectations, and it lowered its full-year guidance, although it had just published new full-year and long-term targets the month before. Dexcom (–4.7%) beat Q2 expectations, but its reported growth in the US was not as strong as Abbott’s, a major competitor. In addition, its current COO, Jack Leach, was nominated as the successor to CEO Kevin Sayer. Life science tools companies Thermo Fisher Scientific (+18.8%) and Danaher (+2.8%) made positive contributions to portfolio performance. Besides publishing a strong set of results for Q2, Thermo Fisher Scientific also updated its long-term targets – they had long been viewed by investors as an obstacle to investing in the company and are now seen as more realistic.

Healthcare service providers (4.1% portfolio weighting), in particular the US health insurers Centene (–50.5%), Molina Healthcare (–45.4%), Elevance Health (–25.1%), and UnitedHealth (–17.5%), had a negative impact on portfolio performance. Sharply higher treatment costs clearly cast a shadow over their Q2 earnings announcements. This was evident in their Medicare Advantage business, which is for Americans aged 65 and older. We believe baby boomers in the 70-to-75 age bracket are a major factor in the reported increase in treatment costs (which is a positive for our medtech investments). Costs in insurers’ Medicaid business, which serves low-income households, also increased. Risk profiles in this business segment have deteriorated since the pandemic because many of the healthier people that had been enrolled in Medicaid are earning more money now. Health insurers will be increasing their Medicare Advantage premium rates effective January 1, 2026, which will help to improve their margins during the course of the year. Adjustments to Medicaid payment rates are announced with a time lag of 9 to 12 months. Humana (+5.2%) is a good example of a successful turnaround in the health insurance sector. It was one of the few health insurers in the US whose rates were already adequately conservative, having adjusted them after the negative developments it encountered during 2023. All performance figures are in euros/B shares.

Based on the very strong earnings reports from medtech companies for Q2 and their full-year guidance for 2025 as well as our latest talks with company executives, we expect procedure volume growth to remain at high levels throughout 2025. A record-high valuation discount versus Wall Street and low valuations that were last seen during the height of the pandemic are additional arguments for investing in the Bellevue Medtech & Services (Lux) Fund. Furthermore, there are already signs of considerable M&A momentum, and large-cap companies are obviously willing to use their cash-rich balance sheets to drive external growth.

The most important factor for success over the long run is the approval and subsequent launch of relevant new products that generate high sales growth. Examples here are Abbott’s Lingo, Libre Rio, Libre 3, TriClip, and AVEIR products, Boston Scientific’s Farapulse PFA system and Watchman FLX Pro device, and the new da Vinci 5 surgical robot from Intuitive Surgical.