Bellevue AI Health

The US economy showed signs of strength in December. Better-than-expected job market and inflation data were but two of several indicators that the US economy was humming along. The dollar appreciated and US bond yields rose as a result, with ten-year US Treasury yields up 40 basis points at 4.6% as the month ended. As had been expected, the US Federal Reserve lowered its key lending rate by 0.25% to a 4.25-4.5% target range, the third consecutive cut, but sees only limited room for further rate cuts due to stubborn inflation.

The latter message sent major large-cap indexes such as the MSCI World (-2.6%) and S&P 500 (-2.4%) into negative territory. Small-cap indexes such as the Russel 2000 (-8.3%) retreated even more in the face of rising bond yields and lost considerable value. The broad healthcare sector (-6.1%) was pressured by weak US health insurance stocks and by biotech and pharma stocks that have a particularly defensive profile. The Bellevue AI Health (Lux) Fund (-6.2%) closed lower as well, more or less in line with its benchmark.

Biopharma investments (53.9% weighting at the end of the month) had a negative impact of 2.8% and 0.1% on the fund's absolute and relative performance. Pfizer (+1.2%), Chugai (+1.0%) and Gilead (+0.6%) made positive performance contributions, while Novo Nordisk (-18.9%), Johnson & Johnson (-6.7%) and Eli Lilly (-2.9%) were detractors. Chugai was marked up on FDA approval for Galderma’s Nemluvio (nemolizumab) for the treatment of patients with moderate to severe atopic dermatitis, a drug that had initially been discovered and developed by Chugai. Pfizer’s earnings guidance for 2025 came as a positive surprise to investors. Novo Nordisk was unable to meet high investor expectations regarding the efficacy of its next-generation obesity drug Cagrisema. Investors had anticipated an average weight loss of more than 25%, but Cagrisema led to a weight loss of only 22.7%. That was good news for Eli Lilly, which closed the month with a smaller loss.

Medtech stocks (28.6%) had an impact of -1.2% on absolute performance and -0.1% on relative performance. EssilorLuxottica (+0.4%) was the only stock in this group that made a positive contribution to performance. Stryker (-8.0%), Medtronic (-6.9%) and Abbott (-4.8%) were performance detractors. EssilorLuxottica announced the acquisition of Espansione, a company specialized in the non-invasive diagnosis and treatment of eye diseases such as Dry Eye Syndrome (DES). Investors welcomed the company’s latest expansion within the field of medical technology.

Healthcare services (11.7%) delivered a negative absolute performance contribution of 1.8% and a positive relative contribution of 0.3%. The US health insurers UnitedHealth (-16.8%), CVS Health (-25.0%, not in the portfolio) and Cigna (-17.9%, not in the portfolio) closed deep in the red. All three companies are also engaged in the pharmacy benefit management (PBM) business, which accounts for a significant share of these firms’ operating profit. A bipartisan bill making its way through Congress would break up companies that have both PBM and health insurance operations. We think the probability of this bill being signed into law is very low.

Tech exposure (5.6%), which includes tech companies from both the healthcare and IT industries, had a negative impact of 0.1% on both absolute and relative performance. Waystar (+18.8%) was a performance driver, while Oracle (-9.8%) and Veeva (-7.7%) detracted. Veeva reported better-than-expected quarterly results and raised its full-year sales and profit guidance, which pleased investors, but the company also announced that one of its 20 largest customers in the pharmaceutical business had decided to switch to a competing CRM platform offered by Salesforce.

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.