EQS Group-News: Bellevue Asset Management AG
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Market commentary, June 25, 2020
Sustainable Healthcare: crisis-resilient and growing fast
The BB Adamant Sustainable Healthcare Fund stood remarkably firm in the face of exceptional volatility. A global investment approach coupled with a systematic focus on sustainability contributed to the fund's absolute and relative strength during the market turmoil.
Stability in the current situation
Even during the worst weeks of the coronacrisis, the healthcare sector showed resilience and lived up to its reputation as a defensive investment theme with lower levels of volatility compared to the overall market. Investor hopes that effective treatments for Covid-19 would soon be available gave the sector an additional performance boost. Meanwhile business activity in cyclical industries nearly ground to a halt. That did not go unnoticed on stock markets either: Most cyclical stocks were marked down in recent months, whereas most healthcare companies performed fairly well.
The companies in the portfolio of the BB Adamant Sustainable Healthcare Fund generally show very little economic sensitivity. Healthcare products and services are often absolutely essential and will be prescribed by doctors or purchased even during economic downturns. Not only that, the sector benefits from structural growth drivers. Most of the companies the fund is invested in have very solid balance sheets and stable cash flows too. This is another reason why the portfolio companies performed so well during the recent market meltdown.
Healthcare is an attractive, fast-growing sector even without a pandemic
The healthcare sector is growing at an annual rate of 5%, or twice as fast as gross world product. This trend is likely to continue going forward because the growth drivers specific to this sector - demographics, lifestyles and innovation - remain intact. Demographic aging is becoming an issue across the globe, as is the rapid spread of obesity and diabetes. Meanwhile demands for innovative and efficient solutions that target the root cause of diseases are growing louder. Healthcare companies that help to slow the spread of lifestyle diseases can profit from this huge market.
Strong sector innovation remains a constant
The innovative capacity of healthcare firms is plain to see even in today's crisis. Almost 600 clinical trials investigating drugs and vaccines for treating Covid-19 were launched in record-breaking speed within just three months, from March to June of 2020. Some of the companies in the fund's portfolio are active in these fields too. Japanese pharma giant Chugai and its partner Roche, for example, are testing whether Actemra, an IL-6 receptor antibody drug that is indicated for the treatment of rheumatoid arthritis, could also be effective in treating the hyper inflammatory response observed in some Covid-19 patients. This drug has already been authorized for emergency use in China after proving beneficial for patients with severe cases of Covid-19. Phase III trials investigating Actemra in Covid-19 are under way in Europe and the US.
The road map towards a sustainable healthcare system has become timelier than ever
Certain themes on the road map to a sustainable healthcare system have moved to the forefront again. Prevention, for example, has become a top priority in the fight against the coronavirus pandemic. Prevention is not just about developing vaccines. It also entails the production of personal protective equipment such as face masks and gloves, and disinfectants as well as other products. An important aspect is the speed with which potential treatments for coronavirus disease are being investigated around the world. In addition to solo efforts, numerous international collaborative research projects have been initiated. Diagnostics has also garnered plenty of attention. South Korea was more successful than other countries in halting the spread of the coronavirus disease thanks to mass testing. Amid the virus crisis, telemedicine has also become very relevant as a means of delivering patient care. Government agencies, telemedicine vendors and insurance companies are pushing this technology because it is very efficient and cost-effective. Access to medicine, a long-standing debate in the healthcare sector, has become a hot-button issue in the current situation. While researchers are racing to develop medical solutions for Covid-19 on various fronts, people are also asking whether the products that prove to be effective will be equally available around the world.
BB Adamant Sustainable Healthcare: USD 100 mn mark passed for the first time
Launched in July of 2018, the BB Adamant Sustainable Healthcare Fund was the first investment fund with a clear focus on healthcare and sustainability. Its investment process is similar to the methodology behind the Adamant Healthcare Index that has been successfully compiled by Bellevue Asset Management since 2007. The fund portfolio has a PEG ratio of 1.2, which is not overly expensive - especially compared to the broader market. Average estimated sales growth of the 40 stocks in the portfolio is approximately 13% and the average EBITDA margin is about 26%, which we consider attractive. The fund has returned 9.8% (USD/I shares) from the beginning of the year to June 16. That represents an excess return of 8.6 percentage points compared to the MSCI World Healthcare Net Return Index and 14.9 percentage points compared to the MSCI World Net Return Index. Total invested capital recently passed the USD 100 mn mark for the first time ever, which inspires further confidence in the fund and makes it even more attractive to institutional investors.
For further information:
Bellevue Asset Management AG, Seestrasse 16 / P.O. Box, CH-8700 Küsnacht/Zurich
Bellevue Asset Management
Bellevue Asset Management and its sister company StarCapital based in Oberursel outside Frankfurt, Germany are part of Bellevue Group, an independent, Swiss financial group registered in Zurich and listed on the Swiss Exchange SIX. Bellevue was established in 1993 and is a leading investment boutique specialized in healthcare equities and traditional as well as alternative investment strategies with assets under management of CHF 10.6 billion.
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