Bellevue Digital Health

Global stock markets (MSCI World Net Index +1.8%) continued to perform well in September, as did the US tech sector (Nasdaq 100 +2.6%). The healthcare sector as a whole closed lower (MSCI World Healthcare (-3.0%), but the Bellevue Digital Health (Lux) Fund (+1.5%) showed a pleasing positive performance.

As could be expected, growth stocks (the primary focus of the Digital Health Fund) benefited the most from the US Federal Reserve’s rate cut. These same dynamics explain the weak performance by pharmaceutical stocks and, consequently, the healthcare sector as a whole. Such shifts in the general investment landscape will encourage the investment community to hunt for new, attractive investment ideas, which suggests that digital health growth stocks will benefit more than most during the current market phase.

The positive performance of the Bellevue Digital Health (Lux) Fund in September was well supported. Fifteen of the 33 stocks in the portfolio made a positive contribution to the fund's performance. The greatest positive contributions came from our investments in Inspire Medical (+17.4%), Insulet (+14.8%), Exact Sciences (+10.4%), Natera (+7.3%), Align Technology (+7.2%), Ambu (+3.5%) and Procept BioRobotics (+1.4%).

Inspire Medical's management is expecting 2025 sales growth of >20% and mentioned that GLP-1 patients could become a growth driver for the company from 2025 on, which was cheered by investors.

Insulet’s management made some positive remarks about the expected number of new patient starts in the second half of 2024.

Exact Sciences presented better-than-expected clinical data on Cologuard Plus, its early colon cancer screening test, at this year's ESMO (European Society for Medical Oncology) meeting.

Chinese stocks JD Health (+49.1%), Alibaba Health (+78.4%), Ping An Healthcare and Technology (+43.8%) and Yidu Tech (+14.0%), which are assigned a low weighting (3% at month's end), made a contribution of 1.0% to absolute performance after the Chinese government announced a fiscal stimulus package.

The rather small positions in Evolent Health (-11.6%), Phreesia (-11.4%), Privia Health (-9.6%), TransMedics (-6.6%), Penumbra (-4.0%) and Veeva Systems (-3.0%) detracted from performance.

Evolent’s share price returned to more normal levels in September after jumping on takeover speculation in the previous month.

Phreesia’s profits for the second quarter beat expectations and management raised its earnings guidance for the current financial year, but it gave a very low forecast of new healthcare services clients for the coming fiscal year.

Veeva Systems, a provider of cloud-based software solutions for more efficient drug development and commercialization, was a performance detractor because Salesforce, a tech company that is not in the fund's portfolio, gave an initial glimpse of its plans in pharma CRM at the 2024 Dreamforce conference. 

All performance data is in USD / B shares.

From a fundamental point of view, digital health companies have reported stable above-average growth and that is expected to continue in 2024.

In their discussions with investors during February and March, the executives of many companies made positive remarks about business in the first quarter and for 2024 as a whole. The approval and subsequent launch of relevant new products will continue to bolster sales growth, too. Examples here are Inspire Medical's new Inspire 5 device for obstructive sleep apnea, Dexcom's Stelo and G7 blood glucose sensors, Intuitive Surgical's new da Vinci 5 surgical robot, and Insulet's Omnipod 5 patch pump.

As witnessed during the last two years, even outstanding sector-specific fundamentals can be overridden by macroeconomic developments and shifting investor preferences. In 2024, we expect our investment solution to benefit from several factors: Cuts in US interest rates (which usually benefits growth stocks the most), attractive valuation levels (price/sales multiples close to historical lows), an expected increase in M&A and IPO activity, a general repositioning as investors drop last year's outperforming stocks and buy high-quality stocks, and the underwhelming growth outlook for the world economy (which in the past has been a relatively good setting for non-cyclical subsectors such as the digital health) underpin our optimism and make a good case for investing in the Bellevue Digital Health (Lux) Fund.