Bellevue AI Health

Last month’s readouts on the US economy were mixed. Core inflation came in better than expected, but the jobs report and consumer sentiment fell short of expectations.

The sector rotation triggered in January when the Chinese company DeepSeek released its first AI model continued into February as capital flowed out of tech stocks (Nasdaq 100 -2.7%) and into the healthcare sector (+1.1%), among others. The latest data on the US economy and Donald Trump’s threats about import tariffs had a relatively positive impact on stock prices in the healthcare sector compared to large-cap indices such as MSCI World (-0.7%) and the S&P 500 (-1.3%). The Bellevue AI Health Fund (+1.2%) showed a positive return, too, and ended the month slightly ahead of its benchmark.

Exposure to biopharma (54.8% weighting at the end of the month) contributed 3.1% to the fund’s absolute and 0.2% to its relative performance. Gilead (+17.6%), AbbVie (+13.7%) and Eli Lilly (+13.5%) were performance drivers, while Daiichi Sankyo (-17.1%) and Merck & Co. (-6.6%) detracted from performance. Large-cap biopharma stocks are considered particularly defensive plays and they were clearly in demand in February. Gilead released strong Q4 results, driven by its HIV medications, which surprised investors, and its profit guidance for 2025 also surprised to the upside. Eli Lilly’s 2025 sales guidance for its obesity and diabetes drugs Zepbound and Mounjaro was better than expected. In addition, prescriptions for both drugs have recovered and the company announced that it was investing USD 27 bn to bolster its manufacturing base in the US to keep up with high levels of demand. Merck has temporarily stopped shipments of its Gardasil 9 HPV vaccine to China until at least mid-2025, citing the weak Chinese economy and Beijing’s crackdown on bribery and corruption.

Medtech companies (28.6% weighting) had a negative impact of -0.8% on absolute performance but a positive impact of 0.3% on relative performance. Abbott (+22.7%) and EssilorLuxottica (+22.3%) made positive contributions to performance, while Thermo Fisher (-11.5%) and Danaher (-6.7%) weighed on performance. EssilorLuxottica beat investor sales expectations for the fourth quarter and although management did not change its long-term sales forecast, it became clear during the conference call that its sales growth would pick up thanks to the AI smart glasses it is co-developing with Meta. We presume that the negative quarterly reports published by other life science tools companies cast a cloud over hopes that the end markets addressed by Thermo Fisher and Danaher would display a swift recovery.

The absolute and relative performance contributions of healthcare services providers (10.7%) were -0.9% and -0.3% respectively. McKesson (+6.6%) made a positive contribution, whereas UnitedHealth (-12.4%) and HCA Healthcare (-7.2%) detracted from performance. McKesson’s latest guidance surprised to the upside. UnitedHealth shares traded lower after the Wall Street Journal published an article claiming that the US Justice Department was launching a new investigation into the company’s Medicare Advantage billing practices.

The fund's tech exposure (5.3%), which includes tech companies from both the healthcare and tech industries, had a neutral impact on absolute and relative performance. While Waystar (+8.1%) and Nvidia (+4.0%) advanced mom, Qualcomm (-9.1%) and Veeva (-3.9%) were performance detractors. Waystar, a cloud software provider for healthcare organizations, reported better-than-expected sales and profits for the fourth quarter.

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.