Bellevue Medtech & Services (CH)

US economic data in March was a bit more sluggish than expected. Core inflation and jobs market data did not quite meet expectations but remained at healthy levels. US consumer confidence weakened again, which reflected the uncertainty surrounding the new administration's tariff policies. The Fed lowered its growth forecasts but raised its inflation forecast for 2025.

Against this backdrop the broader market closed the month sharply lower (-6.3%). Healthcare stocks (-4.2%) were not completely shielded from the sell-off but, as one could expect, they gave up less ground than the broader market because of their defensive profile. The medtech & services subsector (-1.5%) closed in the red as well, but its losses were cushioned by the strong performance of US health insurers. The Bellevue Medtech & Services Fund (-2.2%) closed slightly weaker than its benchmark. Healthcare services exposure contributed 2.8% to the fund's monthly performance, medtech exposure -5.0%.

HCA Healthcare (+10.9%), the largest hospital operator in the US, McKesson (+3.2%), a US pharmaceutical distributor, and Veeva Systems (+1.3%), a provider of cloud-based software solutions for highly efficient drug marketing and drug development, made positive contributions to the fund’s performance. HCA’s management described business activity during the first quarter in a very positive tone.

US health insurance stocks were strong in March. UnitedHealth (+8.6%), Elevance (+7.9%), Molina (+7.3%), Cigna (+5.0%), Centene (+2.4%) and CVS Health (+1.1%) made positive contributions to the fund's performance. Humana (-3.7%) was the only stock in this space that showed a negative return. Health insurers’ strong performance in March was fueled by two factors. On the one hand investors began to take an increasingly positive view of the government's 2026 Medicare Advantage payment policy update. Medicare Advantage also enjoys strong support from Republicans. On top of that, Elevance and Centene executives mentioned at an investor conference that analysts’ estimates of their first-quarter earnings are too low. Their remarks also had a positive impact on the stock prices of other health insurers.

Large-cap medtech companies such as Intuitive Surgical (-15.3%), Abbott (-5.7%), Stryker (-5.3%), Boston Scientific (-4.7%) and Medtronic (-3.5%) detracted from performance. Investors sold off these stocks on worries that the Trump administration would introduce new tariffs in early April, which hit Intuitive Surgical the hardest. These worries were compounded by fears that cutbacks in federal funding for Medicaid would reduce patient demand at hospitals and have a negative impact on medical device manufacturers. We believe the US government has little interest in making things harder for the country’s poorest households.

In the Medtech space, only Zimmer Biomet (+6.6%) and Becton Dickinson (+0.0%) made positive contributions to portfolio performance. At this year's American Academy of Orthopedic Surgeons (AAOS) conference, Zimmer Biomet presented seven new products that are expected to increase the company's weighted average market growth rate from around 4% to 5% by 2027.

Shares of life science tools companies Thermo Fisher (-7.7%) and Danaher (-3.1%) declined on worries related to potential new tariffs.

All performance data is in CHF / AA shares.

In the healthcare services space, we believe hospital operators, healthcare technology 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.

In view of the strong Q4 earnings announcements from medtech companies and their latest guidance for 2025, as well as our talks with company executives, we expect procedure volumes to stay strong in 2025. Volume growth is unlikely to accelerate but should remain at healthy levels.

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.