Bellevue Sustainable Healthcare

MSCI World Healthcare underperformed MSCI World in October 2024 by 284 bps (MSCI World Healthcare -4.8% vs. MSCI World -2.0%). A rising 10-year US treasury yield, mixed company Q3 results, and uncertainty into the US election saw global equities pull back in October. The Bellevue Sustainable Healthcare (Lux) Fund (I-shares: -4.9%, in USD) performed broadly in line (-5 bps) with its healthcare index benchmark.

Along with disappointing price action, we note that the forward P/E relative for MSCI World Healthcare vs MSCI World moved deeper into discounted territory in October. We see two drivers for this de-rating, healthcare was pulled into the US election volatility (mainly in healthcare services), and the mega-cap obesity names faced emerging (albeit early) competition risk.

Within the MSCI World Healthcare Index, healthcare tech (+0.5%) was the best performing subsector in the month. This was followed by Biotech (-1.0%), medtech (-2.9%), and pharmaceuticals (-5.0%). Life science tools was the clear laggard with a performance of -9.9%.

From a geographical point of view, Asian healthcare (all country, -3.6%) performed best, supported by a less weak performance for Japanese equities relative to global healthcare. This was followed by US healthcare (-4.6%), and European healthcare (-6.4%). The laggard region in October was Emerging Market Healthcare (all country, -7.1%), as the Chinese equity market retracted following a strong prior month.

Within the fund, strong absolute performances were reported during the month from Penumbra (+11.3%; strong Q3 results), Otsuka holdings (+10.4%; complete nephrology Phase III study for sibeprenlimab, and strong Q3 results), and UCB (+6.1%; continued strong prescription data for launch products).  On the other hand, negative absolute performances were seen for Innovent Biologics (-28.3%; shareholders question international business plan), Elevance (-22.0%; weak Q3 results and guidance downgrade), and Hypera (-18.8%; proposed merger deal volatility).

Bellevue's rule-based investment approach, which has been successfully implemented since 2007 and is also mapped by the Adamant Global Healthcare Index, serves as the basis for the fund. A universe with around 700 stocks​ ​is compiled from a global pool with over 4000 listed healthcare stocks based on a preselection. As an additional step compared to the conventional methodology, ESG risks of these 700 investable stocks are identified, which could affect the economic value of a company. Here we rely on the longstanding expertise of our research partner Sustainalytics.

In order to get into the fund portfolio, the companies must meet the following criteria: Appropriate ESG risk profile (best-in-class approach), not involved in severe ESG-relevant controversies and comply with the ten principles of the UN Global Compact. In the case of controversial business areas and practices, revenue thresholds are defined for inclusion. The results of the ESG filter application demonstrate that around 40-50% of the titles meet our strict sustainability requirements. The proven factor analysis is then carried out according to four quantitative and four qualitative parameters. The objective here is to select companies that are inexpensive, have strong growth and have an exceptional competitive position so that they can maintain their leading position also in the future.

The analysis results in a portfolio structure consisting of the 40 most sustainable stocks in the healthcare industry, ten of them per region (Western Europe, North America, Japan / Oceania, emerging markets). The application of the eight factors in the past has typically led to a focus on mid cap stocks and an underweight position in pharma and the North America region relative to the MSCI World Healthcare Index. The rebalancing takes place every six months.