Market and sector review
The modest decline in global equity indices in June masked significant volatility across much of the market. The AI trade took centre stage once again, with the month seeing a dramatic valuation and positioning reset in the most crowded areas of the market. Year-to-date winners such as hyperscalers, semiconductors and memory stocks sold off, amid a combination of valuation concerns, tighter financial conditions and fears that hyperscalers may be unable to monetise AI sufficiently to earn a return on their vast capex. This shift in sentiment away from the AI leaders benefited industrials, along with areas of the market that had trailed so far, such as healthcare, utilities and financials, either being considered ‘AI hedges’ or second-derivative beneficiaries of the AI infrastructure buildout.
Within healthcare, managed care, healthcare services, biotechnology, pharmaceuticals and distributors were the strongest performing subsectors, while healthcare equipment, facilities and life sciences tools and services lagged.
June 2026 was defined by a fragile move towards peace in the Middle East and a hawkish debut for the new chair of the Federal Reserve, Kevin Warsh. The US and Iran signed a memorandum of understanding on 17 June to end nearly four months of war, reopen the Strait of Hormuz and begin 60 days of negotiations. The oil price fell sharply as tanker traffic resumed. US bond yields, however, spiked the same day, as Warsh's first meeting of the Federal Open Market Committee as chair held interest rates steady amid stubbornly high inflation readings.
Warsh stressed that the Fed is committed to price stability and the overall tone read as hawkish. Nine of 18 participants projected at least one hike, and the inflation forecast was raised to 3.6%. Even so, as the month progressed and oil prices continued to fall, US yields began to ease, which helped smaller-cap stocks perform strongly as did longer-duration assets whose valuations had been compressed by the spike in oil prices.
Fund performance
The Company’s NAV increased by 6.4% in June, behind its benchmark, the MSCI All Country World Daily Net Total Return Health Care Index, which was up 6.5% for the month (both figures in sterling terms).
Positive contributors relative to the benchmark in June were Apotex Health, CVS Health and Pfizer.
Apotex Health enjoyed a positive debut on the stock market following its IPO, rerating from what was considered an attractive valuation at inception.
US healthcare services company CVS Health continues to respond well to positive revisions, with the market becoming more and more comfortable with this idea that the managed care industry in the US is on a path to recovery, from trough margins, following a challenging couple of years.
The Fund had no exposure to Pfizer during the period under review with the stock struggling after announcing disappointing results for a key pipeline asset, sigvotatug vedotin, for the treatment of lung cancer. In short, the asset did not show a statistically significant improvement in the primary endpoint of overall survival compared to chemotherapy.
Negative contributors included AbbVie, Teva Pharmaceutical Industries and Novo Nordisk.
The primary driver behind AbbVie’s strong performance was an overwhelmingly positive response to its proposed acquisition of Apogee Therapeutics, a biotechnology company whose lead asset is in late-stage development for the treatment of atopic dermatitis.
There was no thesis-changing news for Teva Pharmaceutical Industries although we do note there may be caution ahead around upcoming news flow for key pipeline assets in the field of auto-immune disorders such as vitiligo, a chronic autoimmune disorder where the immune system attacks and destroys melanocytes – the cells that produce pigment in the hair and skin.
The Fund was underweight Novo Nordisk which is experiencing positive momentum driven by the impressive uptake of Oral Wegovy for the treatment of chronic weight management.
Fund activity
During the period we initiated positions in Apotex Health, Enliven Therapeutics, Johnson & Johnson and Solventum.
We participated in the IPO of Canadian generics company Apotex Health given the attractive valuation and positive outlook for the business. Enliven Therapeutics is a US-based biotechnology company with a pipeline asset, ELVN-001, that has the potential to be a best-in-class therapy for the treatment of Chronic Myeloid Leukemia (CML), a slow-growing blood cancer that causes the bone marrow to produce too many abnormal white blood cells.
A significant index constituent, Johnson & Johnson, was added to the portfolio given it is delivering on multiple fronts in commercially attractive disease areas such as psoriasis, bladder cancer and lung cancer.
Solventum is currently going through a dynamic transformation that includes divesting non-core assets, rationalising stock-keeping units and cost saving programmes, all of which could release significant shareholder value.
The new positions were funded, in part, with exits from Corvus Pharmaceuticals, H Lundbeck, Novo Nordisk, Nuvalent and RadNet.
Outlook
The fundamentals of the healthcare industry have been robust for some time, a statement backed up by high levels of innovation, a supportive regulator and a buoyant M&A environment, especially in the world of bio-pharmaceuticals. However, two recent catalysts appear to have reignited interest in the sector. First, hope there will be a resolution to the conflict in the Middle East, easing pressure on energy costs and input costs for the pockets of the industry. Second, healthcare has likely been and could continue to be a significant beneficiary from rotation out of areas such as AI and technology.
We believe the standalone story with healthcare is compelling, but a sustained period of rotation could really add sustained momentum to the recent rally.
