Bellevue Healthcare Strategy

MSCI World healthcare underperformed MSCI World in November 2024 by 546 bps (MSCI World Healthcare -0.9% vs MSCI World +4.6%). While global equities rallied post-election, healthcare was held-back by uncertain policy direction. The Bellevue Healthcare Strategy (Lux) Fund (I-shares: 1.0%, in USD) outperformed (by 191 bps) its healthcare index benchmark.

The cyclical MSCI sectors performed best (consumer discretionary; +9.4%, financials; +8.0%) in November, although healthcare underperformed other defensive sectors (for example consumer staples; +2.4% or utilities; +1.9%). This was largely driven by US politics, with President-elect Trump nominating some controversial figures to lead the healthcare-related government agencies.

Within the MSCI World Healthcare Index, there was a considerable dispersion of monthly performance between the subsectors. Healthcare tech (+10.6%) was the best performing subsector in the month, followed by healthcare services (+6.7%), medtech (+3.2%), life science tools (-1.1%), pharmaceuticals (-5.0%), and biotech (-6.3%).

From a geographical point of view, US healthcare (+0.2%) performed best, supported by managed care companies. This was followed by European healthcare (-3.8%), Asia healthcare (all-country; -4.2%), and emerging markets healthcare (all-country; -4.5%). From a market-capitalization perspective, the mid-caps (USD 2-60 bn mrk-cap; +0.5%) group performed best, followed by large-caps (USD 60-200 bn; -0.5%), and mega-caps (>USD 200 bn; -1.6%).

Within the fund, strong absolute performances were reported during the month from Pro Medicus (+28.6%; large contract win), McKesson (+21.9%; FY2Q earnings better than feared), and Biocon (+15.0%; biosimilar facility approved). On the other hand, negative absolute performances were seen for Bumrungrad (-25.0%; weak Q3 results), Tenet Healthcare (-12.3%; hurricane and political concerns), and Regeneron (-10.5%; Eylea biosimilar launch).

During November, we conducted our latest six monthly rebalance of the portfolio. Following our rules based process (described below), we introduced 16 new stocks (and sold 16, to maintain our predetermined 45 total). At the time of rebalance, the weighted average PEG-ratio for the portfolio was 1.6x, the price-to-sales ratio was 4.5x, EBITDA margin was 25%, and 3-year sales CAGR was 11%.

The investment process for the Bellevue Healthcare Strategy Fund resembles the rules-based investment process that Bellevue has successfully applied since 2007. In this approach, the 40 most attractive stocks in the healthcare sector worldwide are selected every six months. The Bellevue Healthcare team screens about 700 of the 4000 listed companies in the healthcare sector worldwide based on four quantitative criteria (PEG valuation, price/sales, sales growth and EBITDA/sales) and four qualitative criteria (assessing the company's management, product pipeline, operating risks and country-related risks). The ten most promising stocks from four different regions – Western Europe, North America, Japan/Australia and emerging markets – are selected. The maximum weighting of the region with the highest overall score, which is usually North America, is capped at 35% during the periodic rebalancing, which increases the emphasis given to emerging markets. Companies with rich valuations and low growth rates will rarely be selected for the portfolio. Mid cap stocks have typically represented 60-80% and the Asia region approximately one-third of the portfolio. Pharmaceutical stocks are clearly underweighted compared to the MSCI World Healthcare Index. Bellevue has applied this investment approach since April of 2007 and it is used to compile the Adamant Global Healthcare Index.