Market review
Global equity markets were broadly flat in November. Beneath the headline performance, however, sector returns diverged significantly. Information technology (IT) stocks posted negative returns as investors started to price in higher earnings volatility after a period of exponential AI capex investment. The rotation out of IT names likely benefitted the healthcare sector which was the best performer in the month. Within healthcare, pharmaceuticals, supplies, distribution and biotechnology had a particularly strong month, whereas healthcare information technology and managed care were the only subsectors that ended the month in negative territory.
In the US, the macroeconomic data flow remained partially constrained by the government shutdown which concluded in the second week of November. The limited statistics available portray a relatively stable environment: the unemployment rate held at 4.3%, retail sales and PMI surveys were solid and producer price inflation did not accelerate. A December rate cut is now widely expected, following comments from Governor Waller suggesting that labour market conditions have softened sufficiently to justify a more accommodative stance. However, in the absence of more detailed data, uncertainty persists regarding the longer-term trajectory of the Federal Reserve’s policy rate.
Turning to healthcare, another ‘deal’ was struck between the US administration and the pharmaceutical industry. This time, Novo Nordisk and Eli Lilly entered negotiations, reaching an accord that echoed those previously concluded with Pfizer* and AstraZeneca. Both companies agreed to implement ‘most-favoured nation’ (MFN) prices for certain drugs within the Medicaid population, to commit to substantial new US manufacturing investments and, more importantly, to significantly lower the cost of their diabetes and obesity GLP-1 drugs in the government-sponsored and the direct-to-consumer channels. In exchange, Eli Lilly and Novo Nordisk will receive a three-year exemption from pharmaceutical tariffs and the government will launch a pilot programme in 2026 to provide Medicare coverage for obesity treatments for eligible beneficiaries. The agreement reduces two of the largest barriers to adoption of these drugs, namely cost and lack of coverage, but it is too early to say whether higher volumes will be enough to offset the lower prices and ultimately to assess the impact the deal will have on Novo Nordisk and Eli Lilly’s earnings.
Fund performance
The Company’s NAV increased by 8.4% in November, ahead of its benchmark, the MSCI All Country World Daily Net Total Return Health Care Index, which was up 6.9% for the month (both figures in sterling terms).
Positive relative contributors relative to the benchmark in November were Exact Sciences, Teva Pharmaceutical Industries and NeuroPace.
After a period of good performance, Exact Sciences was the beneficiary of a $105/share acquisition proposal from Abbott Laboratories.
Teva Pharmaceutical Industries’ performance was the result of two things. The first was a period of solid commercial executions and the second was greater clarity on the near-term pricing landscape for key branded drug Austedo XR for the treatment of tardive dyskinesia.
NeuroPace’s strong performance was driven by good financials and guidance coupled with better-than-expected reimbursement rates for its novel epilepsy treatment.
Negative relative contributors in the period under review were Merck, Fresenius and Lundbeck.
The Fund had no exposure to Merck, which delivered positive clinical news flow, the catalyst for a valuation rerating off a relatively low base.
There was no thesis changing news for either Fresenius or Lundbeck, both of which lagged strong healthcare sector performance following several months of positive share price appreciation.
We added positions in Chugai Pharmaceutical, Guardant Health, Regeneron Pharmaceuticals and Roivant Sciences.
Driven by high levels of innovation, new product cycles, ongoing demand for products and services and an easing political backdrop in the US, the healthcare sector is starting to turn.
A key driver behind the decision to invest in Japanese pharmaceuticals company Chugai Pharmaceutical is the fact that the company is set to receive a tiered royalty from Eli Lilly on global sales of its oral obesity medication orforglipron. If Eli Lilly has a strong launch, then there could be upwards pressure on Chugai Pharmaceutical’s near and medium-term earnings.
Guardant Health, one of the leaders in precision oncology and cancer screening, could benefit from a number of growth drivers in 2026 and beyond, adding to the positive momentum generated in 2025.
US biotechnology company Regeneron Pharmaceuticals was added to the portfolio with the rationale being one of positive earnings revisions coupled with the expectation for a raft of news flow in the coming months that could add greater conviction to the company’s long-term revenue growth.
US biotechnology company Roivant Sciences could benefit from several catalysts in the coming months, including potential product approvals and launch trajectories, all at an attractive valuation.
The new positions were funded, in part, by the exit from Exact Sciences following the news that Abbott Laboratories is looking to acquire the company.
Outlook
Driven by high levels of innovation, new product cycles, ongoing demand for products and services and an easing political backdrop in the US, the healthcare sector is starting to turn. Absolute and relative performances have started to pick up and there are also early signs of positive ETF inflows which bodes well for continued, positive momentum. As long as the industry continues to develop innovative products and to deliver commercial excellence that drives positive revenue and earnings revisions, the positive momentum could be sustained in the near and medium term.
*not held
