Bellevue Digital Health

Global stocks (MSCI World Net Index +3.5%) began the new year in positive territory. The broad healthcare sector as tracked by the MSCI World Healthcare Net (+6.4%) and the Bellevue Digital Health Fund (+8.8%) delivered even better returns. This outperformance can be traced, among other things, to the relative weakness of leading tech names with a focus on AI (Nasdaq 100 +2.3%). The debut of the new Chinese AI-powered “reasoning model” dubbed DeepSeek R1 triggered a sector rotation in the stock market: The market value of stocks such as Nvidia and Microsoft (which are not in the fund's portfolio) plunged, making investors more willing to pull their money out of the tech sector and invest it in healthcare stocks instead.

An increase in M&A activity also buoyed the performance of the digital health sector. Both before and during the J.P. Morgan Healthcare Conference, the premier healthcare investment symposium, there were several takeover announcements: Inari Medical was acquired by Stryker (+8.7%), Bolt Medical (privately held) by Boston Scientific, and Accolade (+101.5%) by Transcarent (privately held). The IPO window opened up again too. We successfully participated in the IPO of Beta Bionics (+40.1%), a supplier of algorithm-based fully automated insulin delivery systems.

30 of the 36 stocks in the fund's portfolio made a positive contribution to performance in January, led by Ambu (+19.6%), Intuitive Surgical (+18.8%), Privia Health (+16.9%), Phreesia (+13.1%), Globus Medical (+12.1%), Natera (+11.8%), Dexcom (+11.6%), Insulet (+6.6%) and Accolade (+101.5%, takeover target). Ambu published a very strong set of quarterly results. Both sales and earnings were well above expectations. Sales of single-use bronchoscopes for airway procedures surprised to the upside, as did the results from its patient monitoring & anaesthesia business areas. We expect Ambu to sustain its momentum as the year progresses. Intuitive Surgical also reported excellent 4Q results and extended its lead over potential competitors. At the J.P. Morgan Healthcare Conference in San Francisco, we held one-on-one meetings with the top management of Privia Health and Phressia. Both companies are establishing good positions in a challenging market environment thanks to a risk-conscious business strategy focused on earnings power. They are also benefiting as many of their competitors grapple with serious difficulties, which is another reason why investors are showing greater interest in these stocks. Dexcom reported key 4Q results and 2025 guidance that pleased investors. Many of its self-caused sales problems that led to a big markdown in its share price last year have since been resolved and sales growth is picking up again.

Procept BioRobotics (-10.0%), Evolent Health (-7.1%), Illumina (-0.7%) and Exact Sciences (-0.2%) were performance detractors. Procept BioRobotics was marked down due to a short-seller report based on false allegations. Investors were also surprised that the company did not publish preliminary results for the fourth quarter and therefore worried that the quarterly results would be weak. All performance data is in USD / B shares.

From a fundamental point of view, digital health companies have reported stable above-average growth and that is expected to continue in 2025.

The approval and subsequent launch of relevant new products will continue to bolster sales growth, too. Examples here are Inspire Medical's new Inspire 5 device for obstructive sleep apnea, Dexcom's Stelo and G7 blood glucose sensors, Intuitive Surgical's new da Vinci 5 surgical robot, and Insulet's Omnipod 5 patch pump.

We expect good tailwinds for our investment solution: 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 expected 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.