Bellevue Medtech & Services (CH)

The US economy displayed stable growth in January. The jobs report was very solid and inflation came in slightly lower than expected. The Federal Reserve kept its benchmark lending rate at 4.25-4.5%, a decision that had already been priced in on the capital market.

The release of the new Chinese AI-powered model dubbed DeepSeek R1 triggered a sector rotation in the stock market: While leading AI tech names with a combined market capitalization of several trillion dollars – Nvidia, Microsoft and Apple (none of which are in the fund's portfolio) for instance – lost ground, investors poured a lot of money into the healthcare sector.

Although the global stock market (+3.6%) closed the month in positive territory, it was unable to keep pace with the global healthcare sector (+6.4%). The Bellevue Medtech & Services Fund (+10.2%) performed well and beat both its benchmark (+9.2%) and the broader healthcare sector. Healthcare services contributed 3.7% to the fund's performance and medtech stocks 6.5%.

Veeva (+11.0%), a leading provider of cloud-based software solutions for highly efficient drug development and commercialization processes, HCA Healthcare (+9.9%), the largest hospital chain in the US, and McKesson (+4.4%), a wholesale distributor of pharmaceutical products in the US, made positive contributions to the fund’s performance.

The US health insurance stocks in the portfolio advanced across the board – CVS (+27.4%) Humana (+15.6%), UnitedHealth (+7.3%), Elevance (+7.3%), Molina (+6.7%), Cigna (+6.6%) and Centene (+5.7%) all made positive contributions.

Their good performance is mainly attributable to three factors. First, despite high medical costs in the fourth quarter, UnitedHealth, Elevance and Cigna reiterated their earnings guidance for 2025, which suggests that premium rates for 2025 have been solid. Secondly, the proposed average payment increase to Medicare Advantage plans in 2026 was significantly more than expected, and that would benefit CVS, UnitedHealth and Humana the most. Thirdly, the tariffs lined up by the Trump administration do not affect US health insurers because these companies generate their profits almost exclusively in the US.

Innovative large-cap companies such as Boston Scientific (+14.6%), Abbott (+13.7%), Medtronic (+13.7%), Intuitive Surgical (+9.6%) and Stryker (+8.7%) were the main performance drivers in the medtech space. Abbott, Intuitive Surgical and Stryker lifted stock prices across the medical technology sector after publishing excellent quarterly results and management guidance for 2025. Fast growth in surgical procedures and robust hospital demand for medical devices such as surgical robots were the key factors here.

Prior to and during the J.P. Morgan Healthcare Conference, the leading healthcare investment conference, there were several takeover announcements: Inari Medical was acquired by Stryker, Bolt Medical by Boston Scientific and Accolade by Transcarent. In the wake of these deals, the share prices of smaller-cap companies such as Penumbra (+12.4%) and Dexcom (+11.7%) traded higher.

In the life sciences tools space, Thermo Fisher surprised investors by issuing better-than-expected guidance for 2025, whereas Danaher's weak outlook came as a disappointment. 

All performance data is in CHF; AA shares.

In the healthcare services space, we believe hospital operators, health tech companies and US health insurers have considerable upside potential. Hospitals should benefit from high patient volumes, higher prices, and only moderately higher personnel costs. We expect health insurers to report solid member growth and significantly higher profit margins in Medicare Advantage and Medicaid business lines. Continued high US Treasury yields could also have an accretive effect on earnings. 

The executives we spoke with at the J.P. Morgan Healthcare Conference indicated that surgical procedure volumes were growing fast and the first earnings announcements from medtech companies for Q4 have confirmed that. We therefore expect high procedure volume growth for 2025. Even if growth rates do not climb any higher, they are likely to remain at a high level.

The approval and subsequent launch of relevant new products will continue to bolster sales growth, too. 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. We believe the sector's pricing power will remain above historical levels in 2025, too. Margins are expected to improve in the wake of the fast sales growth.