Bellevue AI Health

Data released in October, such as a solid jobs report and slightly higher-than-expected inflation, provided further indications that US economic growth was stabilizing. US bond yields rose as a result, with the 10-year Treasury yield increasing by 0.5% to 4.2%. The US dollar gained in value against other major currencies and that pushed world stock markets slightly lower, as reflected in the monthly returns of major large-cap indexes such as the MSCI World (-2.0%) and the S&P 500 (-0.9%). The Nasdaq 100 (-0.8%) also traded slightly lower. Against this backdrop, the broad healthcare sector (MSCI World Healthcare Index, -4.8%) underperformed the total market, as could be expected in such a setting. The Bellevue AI Health Fund (-4.9%) also closed lower, more or less in line with its benchmark.

The fund's exposure to BioPharma stocks (56.4% weighting at the end of month) was mainly to blame for the weak performance. It had a negative impact of -2.6% and -0.4%, respectively, on the fund's absolute and relative performance given this segment's defensive profile. Otsuka (+7.9%), Gilead (+5.9%) and Abbvie (+4.1%) had a positive impact on performance, but Regeneron (-20.3%), Merck & Co. (-9.9%) and Eli Lilly (-6.3%) detracted. Otsuka shares advanced on positive interim results from a Phase III study of sibeprenlimab in adult patients with immunoglobulin A nephropathy. Regeneron tumbled on news that Amgen could soon be marketing its Eylea biosimilar for the treatment of patients with retinal diseases after a court lifted a temporary injunction against the commercial launch of Amgen’s biosimilar version (Pavblu).

Medtech companies (25.5% weighting) had a negative impact of -1.3% on absolute performance but a positive impact of 0.1% on relative performance. Dexcom (+5.1%), Intuitive Surgical (+2.6%) and Terumo (+2.6%) delivered positive contributions. Intuitive Surgical reported excellent results for the third quarter of 2024, driven by strong sales of instruments and increasing placements of its advanced robotic, AI-assisted da Vinci 5 surgical system. Agilent (-12.1%), Thermo Fisher (-11.7%) and Danaher (-11.6%) detracted from performance. Their quarterly reports showed that their targeted markets were recovering only gradually, which disappointed investors. Statements about business activity in the Chinese market also weighed on investor sentiment.

Healthcare services (11.5%) delivered a negative absolute performance contribution of -0.8% and a positive relative contribution of 0.3%. While LabCorp (+2.1%) and McKesson (+1.2%) made positive contributions, Elevance (-22.0%) and UnitedHealth (-3.5%) detracted. Third-quarter earnings from health insurers Elevance and UnitedHealth disappointed investors, due to higher-than-expected medical cost ratios in their Medicaid and Medicare Advantage business. Higher premium rates are expected to lead to a significant improvement in their earnings margins in 2025.

The fund's tech exposure (4.8%), which includes tech companies from both the healthcare and tech industries, had a neutral impact in terms of absolute and relative performance. While the leading AI chip manufacturer Nvidia (+9.3%) and Waystar (+2.3%) contributed positively to absolute and relative performance, Microsoft (-5.6%) and Qualcomm (-4.3%) had negative contributions.

All performance data in USD / B shares.

The rapid development of generative artificial intelligence (GenAI) is ushering in an unprecedented technology-driven transformation that ranks right next to other key milestones such as the Internet, cloud computing and the smartphone. GenAI is creating tremendous opportunities for businesses and investors, especially in the health sector. According to a number of studies, the health sector will be one of the industries that will benefit the most from the deployment of GenAI. This forecast is mainly based on the considerable potential for efficiency gains in healthcare systems, on the large, readily available amounts of data in healthcare systems, and on the considerable financial resources available for healthcare needs.

Already today medications are being developed more quickly and with better rates of success, for example, new diagnostic and treatment methods are producing better clinical outcomes, and GenAI is helping medical professionals make better and more informed decisions. We focus on healthcare companies that have made GenAI a core element of their business strategy and that are investing substantial resources in this technology to gain a lasting competitive advantage and achieve superior value growth. The technology risk here is more calculable than in other industries because healthcare is such a heavily regulated industry.