Development of investment solutions

Despite the ongoing war in Ukraine and a further escalation of hostilities in the Middle East that led to a period of heightened volatility in financial markets, a number of major stock indices rose to new record highs last year. The S&P 500 closed above 6000 points for the first time ever in 2024 and the Dax also marched past its previous record high. Once again, tech stocks couldn’t be stopped and the Nasdaq 100 rose to new heights, briefly trading above the 22 000 threshold. Falling interest rates and geopolitical crisis also made gold shine, which likewise rose to a new high of USD 2790 per troy ounce.

The outcome of the closely followed 2024 US elections was quickly clear. Donald Trump beat Kamala Harris and the Republican Party also won a majority in both the Senate and the House of Representatives. Donald Trump’s second term as president could bring some positive momentum into the healthcare sector, but his nomination of Robert F. Kennedy Jr. as the new head of the Department of Health and Human Services injected a dose of extra uncertainty into the industry.

The US central bank’s federal funds rate, which had stood at 5.5% early in the year, was reduced for the third time in a row at the Fed’s December meeting, bringing the target range to 4.25% to 4.5%. At the same time the Fed projected a more cautious monetary outlook for 2025 and mentioned that its future rate policy decisions would also have to take into consideration the impact of any new tariffs or tax cuts introduced by the Trump administration, in addition to job and inflation data. In Switzerland, the new SNB Chairman Martin Schlegel caused a stir in December when the SNB announced an unexpectedly large rate cut. The Swiss central bank reduced its key lending rate by half a percentage point to 0.5%, citing a significant decrease in inflationary pressure. The European Central Bank reduced its key interest rate, too, and also lowered its growth and inflation forecasts. The election of Donald Trump and the political vacuum in France and Germany are negative factors for Europe’s economy, which clearly weakened over the course of the year.

Investors were able to achieve positive returns in most of the major stock exchanges last year. US stocks performed particularly well. They were led higher by the very resilient US economy, Fed rate cuts, enduring high expectations regarding the potential of artificial intelligence (AI), and by the outcome of the US November elections. The European Stoxx Europe 600 Index (+10.1%) and the SPI (+6.2%) also closed higher last year but were again unable to match the strong gains of the S&P 500 (+35.2%). Small caps advanced as well but were unable to keep pace with the broader market, at both the global and regional level. As for sector performance, communication services (+45.3%), IT (+44.0%) and financials (+38.0%) were the best performers, while basic materials (+2.7%), healthcare (+9.9%) and real estate (+11.4%) brought up the rear. All performance data is in CHF.

Healthcare – several highlights in 2024, no broad upturn

Shares of pharmaceutical heavyweights such as Eli Lilly and AbbVie delivered double-digit returns last year. Innovative large-cap medtech companies led by excellent management teams, Intuitive Surgical, Boston Scientific and Stryker, for example, also achieved significant gains and continued to build on their successful business strategy. In the biotech sector, positive clinical trial data and good operating results lifted the stock prices of companies such as Argenx. The global healthcare sector as measured by the MSCI World Healthcare Index (+9.9% in CHF) ended 2024 in positive territory but underwent a correction during the second half of the year.

Donald Trump’s second term as president will very likely build on the key cornerstones of his first term and could provide an overall favorable setting for the healthcare sector. Republican policies have traditionally promoted innovation and a strong economy. Tax breaks and fewer regulatory constraints are clearly positive factors for companies active in the fields of biopharmaceuticals and medical technology. The new administration is also expected to embrace policies that would speed up approval processes for new drugs and medical devices, further sharpening the country’s competitive edge. What’s more, the anticipated more business-friendly stance at the Federal Trade Commission (FTC) could lead to an increase in M&A activity, and that has often led to higher valuations, especially for small- and mid-cap stocks. The new political agenda in Washington and the ongoing implementation of the Inflation Reduction Act are not without risks though. Issues such as lower drug prices and changes to the general framework for government health insurance programs in the US must be carefully considered when making investment decisions in 2025.

BB Biotech AG’s Net Asset Value (NAV) increased by 3.0% in CHF in 2024 (NBI +6.7%) while its share price declined by 13.5%. The stock began the year with a slight premium of 0.9% to NAV and ended the year with a discount of 14.6% to NAV. Winning stocks in the portfolio were led by Argenx, Revolution Medicines and Scholar Rock, while Ionis, Moderna and Sage were performance detractors. Shares of Bellevue Healthcare Trust ended the year with a negative return of 0.7% in CHF.

With a return of 17.2% in CHF, Bellevue Medtech & Services clearly outperformed the broad healthcare sector. Generally positive earnings reports from medical technology companies were attributed to high growth rates in surgical procedure volumes, which also benefited hospital stocks. The approval and market launch of major new products also contributed to the medtech sector’s good sales growth. Individual subsegments of the medtech and services sector, such as health insurers that are focused on Medicaid health insurance programs for low-income households, traded lower after the Republican sweep of the November elections because the party wants to cut federal spending on Medicaid. However, this correction had only a marginal impact on the fund’s performance due to the low portfolio weighting of this particular subsegment.

The Bellevue Digital Health Fund (+12.7% in CHF) recovered over the course of the year. From a fundamentals standpoint, digital health companies active in a highly diverse range of areas are displaying a stable path of above-average growth. The IPO window reopened in 2024 and the fund’s portfolio managers participated in three IPO transactions. The prospect of more rate cuts from the US central bank and an acceleration in M&A activity are additional arguments in favor of this investment solution.

Bellevue’s two newest products, Bellevue AI Health (+10.7% in CHF) and Bellevue Obesity Solutions (+8.3% in CHF), which were launched at the end of November 2023, also closed 2024 with a positive return. The healthcare industry, more than almost any other industry, is predestined for the application of artificial intelligence. The huge amount of data that is generated within the industry every day creates virtually unlimited possibilities for AI applications. Procept BioRobotics, for example, has taken a decisive step with its Hydros Robotic System for the resection of prostate tissue. Hydros is an AI-powered platform that surgeons use to define and plan surgical prostate treatment, which is then performed in a robot-assisted operation using a disposable endoscope. This translates into faster and safer treatment, and more consistent treatment outcomes. Solutions for obesity prevention and treatment are also in greater demand than ever before and the major clinical milestones on the horizon in 2025 will advance the development of what could become the largest class of drugs ever created. A number of companies active in this field have already performed very well and made positive contributions to the fund’s overall performance. Zealand Pharma, for example, released positive Phase Ib data from its trial of petrelintide, an amylin analog. Negative price movements, as witnessed towards the end of the year in Novo Nordisk, underscore the advantages of portfolio diversification in this rapidly growing market.

The global healthcare funds Bellevue Diversified Healthcare (+10.3%), Bellevue Healthcare Strategy (+6.7%) and its sustainable counterpart Bellevue Sustainable Healthcare (+6.6%) achieved positive returns. The two regional healthcare strategies Bellevue Asia Pacific Healthcare (-2.2%) and Bellevue Emerging Markets Healthcare (-7.7%) were unable to stage a recovery in 2024. Positive R&D news flow from numerous Chinese biotech companies has been overshadowed by the passage of the Biosecure Act in Washington as well as other factors, and the positive performance of other local healthcare markets such as India was not enough to turn around the general trend. All performance data is in CHF.

Broadly speaking, the long-term outlook for the healthcare sector remains positive. Demographic challenges, unhealthy lifestyle habits (keyword obesity) and the rising cost of healthcare act as an incubator for medical innovation. Not only that, thanks to the huge amount of available data, the healthcare system has a decisive advantage when it comes to AI, which is still at an early stage of deployment.

Regional strategies and multi-asset solutions – positive amid the volatile environment

Unlike in the US (Magnificent 7 stocks), European index heavyweights as tracked by GRANOLAS (+3.2%) lost momentum during the period under review. European stocks generally ended 2024 in positive territory, but investors became more worried about new punitive US tariffs and the impact they could have on growth in the eurozone, and political uncertainty in France and Germany also weighed on sentiment. The ECB cut its key lending rate four times in 2024 in response to growing concern about the eurozone economy.

Against this market backdrop, the Bellevue Entrepreneur Europe Small Fund delivered a positive return of 3.5% and outperformed its benchmark. The Switzerland-focused equity strategies Bellevue Entrepreneur Switzerland (+1.7%) and Bellevue Entrepreneur Swiss Small & Mid (+1.0%) also generated positive returns, slightly below that of their European sister fund. The SPI Extra Index closed the year 3.8% higher yoy.

The sub-par performance of European small- and mid-cap stocks in 2024 is the latest chapter of a prolonged period of underperformance that began in 2021. The EU is displaying modest economic growth and PMI readings for the manufacturing sector have been below the growth threshold of 50 since the summer of 2022. Meanwhile many US investors are keeping away from European equities, sending the relative overweight of US equities to its highest level in 24 years. As stock pickers, we like to be contrarian and are maintaining our focus on promising, attractively valued companies. We believe an excessive amount of pessimism has been priced into our targeted market segments, and that alone could lead to a more constructive performance in 2025.

The positive performance of the Bellevue Global Macro Fund (+6.5% in EUR) was well supported, its multi-asset portfolio having benefited from investments in precious metals as well as in equities and bonds. The StarCapital Multi Income Fund generated a positive return of 10.1% in 2024. The bond strategies Bellevue Global Income (+4.8%) and StarCapital Dynamic Bonds (+6.9%) also gained in value last year and clearly outperformed the Bloomberg Global Aggregate Bond EUR Hedged Index (+1.7%). Within the fixed income allocation, corporate bonds performed the best, while government bonds yielded very slim returns. After gaining 11.4% in 2023, the volatility strategy Bellevue Option Premium once again proved its worth in 2024 and generated a return of 7.8% in EUR.

Private Markets – focus on growth investments in SMEs

Bellevue Private Markets focuses on proprietary growth equity investments in SMEs in the DACH region. While 2024 was distinguished by a highly dynamic market and a well-filled deal pipeline, portfolio management activity was primarily engaged in operational value creation and growth initiatives. The timing of the planned exits turned out to be unfavorable: The average valuation of M&A transactions in Europe in terms of EV/EBITDA dropped by about 30% from the previous peak seen in 2021 and now stands at a 10-year low. This consolidation was even more pronounced in the lower market segment (deal volumes of less than EUR 100 mn).

However, declining bond yields and an obvious normalization on the inflation front in developed countries are overall positive factors for private market transactions and valuations. Even Trump’s trade tariff threats have not dampened investor enthusiasm in the stock market, and key leading indicators such as the ISM Services PMI (purchasing managers’ index for the US services sector), which is currently well above the 50 threshold and higher than it has been in the past two years, are pointing up.

However, the «special situation» in Germany is also a significant factor for the LPCI, given its focus on the DACH region. In 2024, Germany’s economy shrank 0.2%, which marked the second consecutive year of a negative GDP reading. A significant improvement is not expected in 2025 either. The current political paralysis after the break-up of Germany’s so-called traffic light coalition government is not exactly good news either. Germany’s biggest political parties reached an agreement to hold early elections on February 23, 2025. Although forming a new coalition after the elections could be a difficult exercise, Berlin is then expected to wield more political power again and will hopefully be better at making and following through on decisions. Germany’s economy is in urgent need of some stimulus because the typical business model of entire industries (especially the auto industry) is currently feeling the heat from foreign competition and other challenges at a time of fundamental upheaval.

With adbodmer AG’s exclusive group of investors and Bellevue Entrepreneur Private LPCI («LPCI») – our specialist investment company – Bellevue can raise significant amounts of capital and also has access to an extensive pool of entrepreneurial experience and collective know-how as well as a vast and valuable business network. These qualities are appreciated and valued by existing portfolio companies as well as potential investment targets.

Two new investments were made for the LPCI in 2024. In January, acting as co-investor, we invested in a company that offers highly specialized B2B customer retention services for the global luxury goods industry. Its business activities are grouped under three subsegments with significant cross-selling potential: product visualization (point-of-sale displays for branded luxury products), product packaging and creative interior solutions. An investment in a second company, a holding company that owns several ambulatory healthcare centers, was made towards the end of the year. The healthcare centers mostly provide outpatient procedures and integrative cancer care.

The operational performance of the existing portfolio companies of the LPCI was mixed due to the challenging economic environment. Cyclical companies had to contend with economic headwinds. Continued subdued consumer sentiment and greater competitive pressure from Asia had an impact on the sales of several companies. But there were also companies in the portfolio that celebrated major operational achievements, successfully executed key projects and reached strategic milestones, extending their growth trajectories. In the absence of strong economic tailwinds – especially in Europe – attention will remain focused on efficiency gains, the optimization of business operations, core business activities and on profitability. Although interest rates have moved lower, prudent and selective use of leverage is still called for; global economic growth currently seems too shaky for overly ambitious investment proposals riding on a lot of optimism. Instead, targeted investment programs must contribute to profitable growth in as short a time frame as possible. After years of growth-at-all-cost strategies, the market is now clearly acknowledging the value of this approach.

One private equity transaction took place in the fourth quarter that was financed exclusively by members of the investor group due to the more distant exit horizon. It involved a Swiss company that specializes in the development and production of small and micro-sized rechargeable lithium-ion batteries that are primarily sold to the medical technology sector.

Once again, Bellevue adbodmer’s strategic focus on companies with a very clear USP, solid financials and low levels of debt served the company well given the volatile environment.