Bellevue Diversified Healthcare

Global equities performed poorly in March 2025, with the MSCI World Index down 4.5%. Uncertainty regarding US trade tariffs, and fear that austerity could drive an economic slowdown, contributed to a negative equity market environment as investors were quick to price a potential slower earnings growth environment. While some soft-measures have been supportive of a slowing US economy thesis (such as consumer sentiment data), there are limited hard-data to confirm this. US tech stocks (Nasdaq 100; -7.6%) and small-cap US stocks (Russell 2000; -7.0%) came under significant pressure, while European indexes (e.g. Dax in USD; +2.2%) performed better. 

Healthcare (MSCI World Healthcare) outperformed global equities (MSCI World) in March by 213 bps. While the sector declined on an absolute basis (-2.3%), it proved to be a relatively safe haven. We see this as being in line with the sector's fundamentals, such as high margins, innovation, and inelastic demand for its products and services. While the defensive names in the sector remained solid, caution is leaving the more innovative names on the sidelines. Biotech performed poorly in the month (NBI; -6.0%), with further underperformance for the higher-growth smaller companies (XBI Biotech ETF; -8.6%). This subsector has suffered from increased regulatory risk driven by changes in leadership at the FDA.

Healthcare Services (+7.8%) was the best performing healthcare GICs industry, driven by supportive earnings commentary (Elevance Health), and a lack of tariff exposure. Pharmaceuticals (-4.3%) started the month as a safe haven, before tariff concerns accelerated and GLP-1 agonist prescriptions disappointed (Novo Nordisk, -23% in March). We saw several licensing deals, with Roche and AbbVie announcing amylin drug class deals with Zealand pharma (deal size USD 5.3 bn) and Gubra (USD 2.2 bn), respectively. Amylin agonism is a different mode of action from the currently marketed GLP-1 agonist obesity drugs, and could become an important new drug class. Medtech was also weak (-4.4%) in the month, with increasing fear regarding slowing economic activity and tariffs driving down multiples. Cost saving initiatives within the National Institute of Health has created some uncertainty regarding life science tools (-4.5%) earnings, although we see only a minor risk for the diversified names (e.g. Thermo Fisher).

From a geographical point of view, Asian healthcare (+1.2%) performed best in March, followed by emerging markets (+1.1%). US (-1.8%) and particularly European (-4.5%) healthcare were disappointing in the month, with the difference being the strength of services in the US and the aforementioned weakness in Novo Nordisk shares.

Bellevue Diversified Healthcare Fund (I-shares: -3.4%, in USD) underperformed its healthcare index benchmark by 107 bps, largely due to a tilt towards innovative companies. Within the fund, we saw a strong performance from several healthcare service names. We also saw good performances from US biotech company Alnylam (+9.4%) following the FDA approval of Amvuttra in cardiomyopathy, and Japanese pharma Otsuka (+6.7% in USD) due to progress with sibeprenlimab in nephropathy.

Global healthcare is proving to be a relative safe haven in a difficult equity market so far in 2025 (+5.1% YTD). We expect the uncertainty and volatility in equity markets to continue. In healthcare, high gross margins and diversified manufacturing bases should help protect the bottom-line from tariffs, although significant uncertainty remains. After a number of years of de-rating, healthcare valuations remain below global equities, and largely below their historical averages. With inelastic demand for healthcare products and services, we see the sector a likely to remain attractive investment in turbulent times.

Healthcare utilization remains strong, therefore the recent sell-off in medtech looks overdone. In terms of biopharma, we point to innovation, for example at the recent American College of Cardiology conference doctors expressed an high interest in treating high Lp(a) levels, which is an independent risk factor for cardiovascular disease. Treatments are coming, and we see this new drug class as holding large sales potential. We remain focused on high-conviction names from a bottom-up perspective, and see a broad exposure to subsectors, style and geography as appropriate from an risk perspective.