Bellevue Sustainable Healthcare

MSCI World Healthcare underperformed MSCI World in September 2024 by 481 bps (MSCI World Healthcare -3.0% vs MSCI World +1.8%). A resilient US economy in combination with Fed rate cuts drove US equity markets to all-time highs. Cyclical sectors benefited from the strong US economy (e.g. consumer discretionary), while Fed cuts drove support for the higher yielding sectors (e.g. utilities). With a lack of support from either of these drivers, and some fundamental headwinds for key stocks, the healthcare sector underperformed. The Bellevue Sustainable Fund (I-shares: -3.4%, in USD) underperformed (by 44 bps) its healthcare index benchmark. While the broader geographic exposure was supportive, there were some individual stock disappointments in the month (e.g. Biomarin competitive pressure).

After broadly inline inflation data and strong labour data early in the month, the Fed surprised by cutting the base rate by 50 bps. The US economy continued to surprise to the upside on various metrics through September, supporting a goldilocks scenario for equities. Indeed, the S&P 500 has had its best first 9 months of the year since 1997. Towards the end of the month, China stimulus drove a rally in Chinese mainland and Hong Kong-listed stocks.      

Within the MSCI World Healthcare Index, medtech (+1.3%) was the best performing subsector in the month. This was followed by life science tools (+1.1%), healthcare tech (+0.9%), biotech (-2.7%), with pharmaceuticals being the clear laggard with a negative performance (-6.1%).

From a geographical point of view, the Emerging Market healthcare (all country, +7.2%) performed best, supported by a strong month for China equities. This was followed by Asia healthcare (all country, -0.4%), US healthcare (+1.8%), and European healthcare (-6.1%). From a market-capitalization perspective, the mid caps (USD 2-60 bn mrk-cap; -0.6%) performed best supported by a size rotation mid-month. This was followed by the large-cap grouping (USD 60-200 bn; -1.7%), with the mega-cap grouping (>USD 200 bn; -4.9%) performing weakly (driven by Novo Nordisk; - 15.4% in September).

Within the fund, strong absolute performances were reported during the month from Pro Medicus (+21.1%; continued positive metrics), Bumrundgrad Hospital (+16.1%; continued strong momentum after Q2 results in late August), and Sinopharma (+14.9%; China stimulus). On the other hand, negative absolute performances were seen for Biomarin (-22.9%; increasing achondroplasia competition), Daiichi Sankyo (-21.0%; negative clinical trial update), and Novo Nordisk (-15.4%; negative clinical trial update).

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.