Bellevue Sustainable Healthcare

MSCI World Healthcare underperformed MSCI World in December 2024 by 348 bps (MSCI World Healthcare -6.1% vs. MSCI World -2.6%). US healthcare reform risk continued to negatively impact the sector. In addition, some key clinical trial related binary events were disappointing. The Bellevue Sustainable Fund (I-shares: -4.8%, in USD) outperformed (132 bps) its healthcare index benchmark.

As in prior months, there was a large dispersion of performance across MSCI sectors. Consumer discretionary (+2.3%) and communication services (+2.2%) performed best, with materials (-8.2%) and real estate (-7.9%) the weakest. Despite the large underperformance versus global equities, the healthcare sector (-6.1%) performed broadly in line with the median across MSCI sectors (-5.9%).

Within the MSCI World healthcare index, there was also a considerable dispersion of monthly performance between subsectors. Life science tools (-2.6%) was the best performing subsector in the month, followed by medtech (-4.3%), biotech (-4.8%), and pharmaceuticals (-5.1%).

Healthcare services (-13.7%) performed very weakly driven by multiple negative political comments and plans around PBM pharmacies and other business models. From a geographical point of view, asia healthcare (-2.9%) performed best, with its companies perhaps further removed from the US market than US or European peers. European (-6.2%) and US (-6.3%) healthcare performed poorly.

During the month there were several key clinical trial related binary events in the sector. In particular, we note disappointing Phase III data in obesity for Novo Nordisk with Cagrisema, mixed Phase II data in chronic pain for Vertex pharmaceuticals, but positive Phase II data for Teva Pharmaceuticals/Sanofi in ulcerative colitis (UC) and Crohn's disease (CD) with an TL1a inhibitor.

Within the fund, strong absolute performances were reported during the month from Dr Reddy’s Laboratories (ADR; +11.7%; broker upgrade), Sinopharm (+5.1%; local Chinese player disassociated with US healthcare reform concerns), and SOBI (+3.7%; broker upgrade).  On the other hand, negative absolute performances were seen for Novo Nordisk (-19.2%; Cagrisema data disappointment), The Cigna Group (-17.9%; US political comments), and Akeso (-16.8%; pullback after strong September to November).

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.