Market and sector review
Global equity markets continued the positive momentum seen in recent weeks, with the key drivers once again being information technology and communication services. As has been the picture for some time now, the broader market is still outperforming the sector. Within healthcare, a number of subsectors posted positive returns, with life sciences tools and services, distributors and services leading the way.
The key drivers behind the market’s upward trajectory are consistent with recent history, in terms of easing trade tension between the US and China and the hope that the US and the European Union will settle on a trade agreement that would apply a universal 10% tariff on many of its exports. The exception to this is that the EU is looking for commitments to reduce tariffs in key sectors such as pharmaceuticals, alcohol, semiconductors and commercial aircraft. Further impetus was given to the market when the Federal Reserve’s Chris Waller said in an interview that the Fed could cut rates as early as July. After a period of pause, dovish comments like Waller’s do not go unnoticed.
Robert F. Kennedy Jr (RFK), the US Secretary of the Department of Health and Human Services, created yet more headlines in June with his decision to dismiss the entire 17-member Advisory Committee on Immunisation Practices (ACIP). There were sensationalist headlines as a result, troubling for sure, but the ACIP meeting that followed at the end of June appeared to deliver on its objectives in terms of voting to approve an antibody for the prevention of RSV (respiratory syncytial virus) and reaffirming the recommendation for routine annual influenza vaccinations across a number of different criteria. As with the FDA, it appears that despite RFK’s interventions, the key areas of these regulatory bodies are functioning broadly as expected.
Fund performance
The Company’s NAV decreased by -0.7% in June, just behind the benchmark, the MSCI All Country World Daily Net Total Return Health Care Index, which was down -0.1% for the month.
Positive relative contributors relative to the benchmark in June were Bruker, UCB and Stevanato Group.
Bruker continues to recover from oversold conditions and a very depressed valuation, helped by easing fears on both tariffs and National Institutes of Health funding.
UCB’s positive contribution was likely driven by two things. First, continued, strong prescription trends for its primary growth driver, psoriasis drug Bimzelx. Second is a view in the market that tariff tensions may be easing, an issue that has depressed UCB's multiple in recent months.
Contract manufacturer Stevanato Group responded positively to upbeat comments from management at a broker conference hosted in early June.
The demand for products and services is not dissipating and the sector continues to innovate and find solutions for complex medical problems.
Negative relative contributors in the period under review were Zealand Pharma, NeuroPace and Exact Sciences.
Pressure on Zealand Pharma’s share price is being driven by a combination of a news flow/catalyst void and increasing competition in weight-loss drugs.
NeuroPace disclosed disappointing clinical data in the field of idiopathic generalised epilepsy, putting pressure on its share price.
There was no negative, thesis-changing news from Exact Sciences during the period with the market appearing to be concerned about both commercial execution and the quality of its pipeline of new screening technologies.
We added positions in Ascendis Pharma and Edwards Lifesciences.
Ascendis Pharma not only has an interesting technology platform that reduces the drug administration burden but also has commercialised assets that appear to be underappreciated.
Edwards Lifesciences is a medical device company that specialises in cardiovascular disease. With an established presence in the field of aortic valve replacement, the company is also benefitting from a new product launch cycle in areas such as mitral and tricuspid valves.
The new positions were funded, in part, by the sale of Japanese medical device company Sysmex.
Outlook
To offer an illustration of how out-of-favour the healthcare sector is, the spread in performance between XLV (a healthcare ETF) and the SPX (the S&P 500 index) during 2Q25 was one of the widest seen since the early 1990s. With valuation spreads also at historic highs, now is an interesting time for contrarians to be looking at the healthcare sector in a positive light.
The demand for products and services is not dissipating and the sector continues to innovate and find solutions for complex medical problems. Key long-term growth drivers such as emerging markets, prevention, consolidation and access and affordability are mostly intact. Assuming there are no leftfield or draconian updates from the US administration in terms of drug pricing or tariffs, the path to outperformance for the healthcare sector could become even clearer.
