Bellevue Sustainable Healthcare

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 Sustainable (Lux) Fund (I-shares: 0.8%, in USD) performed broadly in line (166 bps) with 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%).

Within the fund, strong absolute performances were reported during the month from Pro Medicus (+28.6%; large contract win), Insulet (+15.2%; strong results), and Cardinal Health (+12.6%; strong F1Q results and positive M&A). On the other hand, negative absolute performances were seen for Bumrungrad (-25.0%; weak Q3 results), Olympus (-11.8%; weak results in china), 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 13 new stocks (and sold 13, to maintain our predetermined 45 total). At the time of rebalance, the weighted average PEG-ratio for the portfolio was 1.5, the price-to-sales ratio was 5.2 times, EBITDA margin was 25%, and 3-year sales CAGR was 10%.

Bellevue's rule-based investment approach, which has been successfully implemented since 2007 and is also mapped by the Adamant Global Healthcare Index, serves as the basis for the fund. A universe with around 700 stocks​ ​is compiled from a global pool with over 4000 listed healthcare stocks based on a preselection. As an additional step compared to the conventional methodology, ESG risks of these 700 investable stocks are identified, which could affect the economic value of a company. Here we rely on the longstanding expertise of our research partner Sustainalytics.

In order to get into the fund portfolio, the companies must meet the following criteria: Appropriate ESG risk profile (best-in-class approach), not involved in severe ESG-relevant controversies and comply with the ten principles of the UN Global Compact. In the case of controversial business areas and practices, revenue thresholds are defined for inclusion. The results of the ESG filter application demonstrate that around 40-50% of the titles meet our strict sustainability requirements. The proven factor analysis is then carried out according to four quantitative and four qualitative parameters. The objective here is to select companies that are inexpensive, have strong growth and have an exceptional competitive position so that they can maintain their leading position also in the future.

The analysis results in a portfolio structure consisting of the 40 most sustainable stocks in the healthcare industry, ten of them per region (Western Europe, North America, Japan / Oceania, emerging markets). The application of the eight factors in the past has typically led to a focus on mid cap stocks and an underweight position in pharma and the North America region relative to the MSCI World Healthcare Index. The rebalancing takes place every six months.