Bellevue AI Health

September brought more signs of a slower pace of economic growth in the US, in the form of a cooler jobs market for example. Meanwhile other data points indicated a stabilization, for example on the inflation front and in personal incomes. The Federal Reserve announced a somewhat surprising half-percentage point cut in its benchmark interest rate, more than the consensus expectation of a 0.25% cut. Bond yields retreated, especially at the short end.

This fueled a wave of buying on stock markets worldwide, leading to gains on major large-cap indexes such as the MSCI World (+1.8%) and the S&P 500 (+2.1%). The Nasdaq 100 (+2.6%) also advanced, closing the month slightly ahead of the total market.

Against this backdrop, the broad MSCI World Healthcare Index (-3.0%) underperformed the total market, as could be expected in such a setting. The Bellevue AI Health Fund (-3.2%) also closed lower, more or less in line with its benchmark.

The fund's exposure to BioPharma stocks (57.1% weighting at the end of month) was mainly responsible for the weak performance given the defensive nature of this segment, which had a negative impact of -3.4% and -0.4%, respectively, on the fund's absolute and relative performance. Novo Nordisk (-15.3%), Regeneron (-11.3%), AstraZeneca (-10.8%) and Eli Lilly (-7.7%) alone contributed a negative 2.3% to absolute performance. Novo Nordisk’s shares came under additional selling pressure after the company presented data from its Phase IIa trial of monlunabant in patients with obesity. After 16 weeks of treatment with the oral weight loss drug, patients had lost 6.4% of their baseline weight, which is less than the average 9.3% weight loss achieved by Eli Lilly's orforglipron. Investors were also worried that demand for weight-loss medication could weaken, which we think is unfounded.

Medtech stocks (25.8%) contributed 0.5% to the fund’s absolute performance and 0.2% to its relative performance. QuantumPharm (+45.4%), Insulet (+14.8%), GE Healthcare (+10.6%), Danaher (+3.3%) and Boston Scientific (+2.5%) made positive contributions to absolute and relative performance. Shares of fast-growing companies such as QuantumPharm, Insulet and Boston Scientific gained on the news of the Fed's rate cut. QuantumPharm, a company specializing in drug R&D solutions leveraging AI and robotic automation, GE Healthcare, which specializes in AI-powered imaging diagnostics, and Danaher received an additional boost when the Chinese government announced a fiscal stimulus package.

Healthcare services (11.9%) showed a slightly negative contribution of -0.2% to absolute performance and a neutral contribution to relative performance. While McKesson (-11.9%), Elevance (-6.3%) and UnitedHealth (-0.6%) weighed on performance, HCA Healthcare (+2.9%) made a positive contribution. It appears that surgical procedure volumes at hospitals and ambulatory surgery centers increased considerably in the third quarter, which is likely to have a negative impact on the US health insurers UnitedHealth and Elevance and a positive impact on the HCA Healthcare, the largest hospital chain in the US.

The fund's tech exposure (4.6%), which includes tech companies from both the healthcare and information technology industries, contributed 0.2% to both absolute and relative performance. Oracle (+20.6%), Microsoft (+3.2%) and Waystar (+2.5%) made positive contributions to absolute and relative performance, while Veeva Systems (-3.0%) was a performance detractor. Oracle reported an impressive jump in sales growth and a big order backlog that pleased investors.

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.