Market and sector review

Global equity markets were buoyant in May, driven by the information technology, utilities and communication services sectors, which are viewed as clear beneficiaries of the artificial intelligence (AI) boom. All other sectors were generally positive, with the exception of consumer discretionary on the back of weakening consumer trends. Healthcare lagged the overall market, with healthcare facilities, biotechnology and healthcare information technology performing well, while healthcare services, healthcare supplies and life sciences tools and services had a more challenging month.

May was fairly light in terms of macroeconomic news and saw a continuation of the trends exhibited in the previous month. Data showed US GDP growth is losing momentum, which is consistent with the historical multi-year lag between rates and growth during a forceful tightening cycle. What also emerged from the data is inflation once again cooling off after running ahead of expectations in the first quarter of the year, with consumer spending and sentiment deteriorating (as seen in retail sales growth and consumer confidence surveys).

Finally, the labour market’s cracks, which started to appear earlier in the year, are widening – job openings, average hourly earnings, hiring intentions and non-farm payrolls are all softening. The implication from these trends is that the Federal Reserve will remain in ‘wait and see’ mode for the time being, with the next interest rate move dictated by what will be the first domino to fall out of inflation or economic growth. Until the macroeconomic picture becomes clearer, equity markets will likely lack any meaningful sense of direction.

Fund performance

The Company’s NAV was down 0.9% in May, behind the benchmark (MSCI All Country World Daily Net Total Return Health Care Index) which was up 0.7% for the month.

The main positive contributors in May relative to the benchmark were Merck & Co, Amgen and ICON. The Fund had no exposure to US pharmaceuticals company Merck & Co, which struggled despite disclosing no thesis-shifting news. US biotechnology company Amgen performed strongly following the news the company is actively planning a broad phase three programme for its obesity asset MariTide. The decision to commit to the investment is based on an interim analysis that points to a differentiated profile for the asset. Contract research organisation ICON hosted an upbeat investor day at the end of May including medium-term financial forecasts that were highly encouraging relative to consensus expectations.

Negative contributors in the period under review were Cytokinetics, Bruker and Global Health/India. The catalyst for the sell-off in Cytokinetics was the announcement of a strategic funding collaboration with Royalty Pharma to the tune of $575m. In isolation, the news should have been received with a sense of measure, but it was the revelation that the management team will invest $100m to run a confirmatory phase three trial, for an asset called omecamtiv mecarbil, that upset the market given the product’s questionable clinical profile. Bruker had an especially challenging month following a slightly soft set of 1Q24 financial results, which included a disappointing outlook for 2Q24, plus the company announced a public offering of six million shares of common stock to pay down debt following a number of acquisitions. Indian healthcare services business Global Health/India disclosed a disappointing 4Q24 financial update with results coming in slightly light of expectations. A transient issue, we believe the long-term story remains intact.

During the month we added positions in US medical equipment companies, Stryker and RxSight. The constructive stance on Stryker is based on the potential for high single-digit organic revenue growth driven by elevated levels of utilisation and a raft of new product launches. If successful, Stryker should be in a position to produce operating leverage that could drive earnings upgrades.

The fundamental backdrop is still constructive given patient volumes remain elevated, innovation continues to advance at pace and the healthcare industry is using its strong balance sheet to pursue M&A.RxSight has an innovative solution for the replacement of the eye's natural lens as part of cataract-correcting surgery which allows physicians to adapt the shape of the new lens to suit the patient's visual needs. Being the only company with this technology in a sizeable addressable market and having a management team with extensive experience in the ophthalmology space, RxSight should see robust revenue growth coupled with operating leverage. The positions were funded, in part, by exits from Bio-Rad Laboratories and MoonLake Immunotherapeutics.


May has been an especially frustrating month, with some of the volatility witnessed triggered by clumsy and confusing messaging from companies. More importantly, the fundamental backdrop is still constructive given patient volumes remain elevated, innovation continues to advance at pace and the healthcare industry is using its strong balance sheet to pursue M&A. If GDP growth carries on slowing and the labour market’s cracks widen, we believe healthcare, especially high-quality large caps, will offer even greater appeal.