Market and sector review
September was another positive month for global equity markets. Sectors seen as key beneficiaries of the artificial intelligence boom, such as information technology, communication services and utilities, outperformed, while more defensive areas, including consumer staples and healthcare, lagged. Within healthcare, managed care, distributors, facilities and biotechnology delivered strong returns, whereas supplies, equipment and life sciences tools and services were weaker.
Investor attention was firmly centred on the US Federal Reserve (Fed). At its Federal Open Market Committee meeting, the Fed cut its benchmark interest rate by 25 basis points, the first reduction since December 2024. Although equity markets reacted positively to the announcement, Chair Jerome Powell emphasised that the cut reflected a weakening labour market rather than progress in defeating inflation. In fact, inflation remains elevated – and is slightly accelerating compared with prior months – while labour market conditions continue to soften, with fewer job openings, rising layoffs and a higher unemployment rate. By contrast, GDP growth has remained robust, supported by resilient consumer spending and improving productivity, with Q2 estimates revised higher in September. Whether these trends can continue to counterbalance the job market weakness remains to be seen.
As it pertains to healthcare, since Donald Trump assumed the US presidency, two major policy risks have weighed heavily on the sector: the threat of tariffs on pharmaceutical imports into the US and the potential introduction of a ‘most favoured nation’ (MFN) drug pricing framework for US government-funded healthcare. In September, greater clarity emerged on both issues.
Most large pharmaceutical companies have announced significant investments in US capacity, meaning these tariffs should not apply to their imports
First, Trump announced a 100% tariff on branded pharmaceutical imports. While the headline rate appears severe, the duty will not apply to companies building or expanding manufacturing facilities in the US, including projects under construction. In recent months, most large pharmaceutical companies have announced significant investments in US capacity, meaning these tariffs should not apply to their imports. Although the finer details are yet to be clarified, the outcome appears relatively benign for the industry.
Second, on the final day of the month, the US government and Pfizer reached an agreement under which the company will adopt MFN pricing for the Medicaid channel, lower prices in the direct-to-consumer market, invest in US manufacturing and commit to setting future launch prices at MFN levels. This will be achieved by avoiding undercutting US prices in high-income OECD (Organisation for Economic Co-operation and Development) markets, rather than reducing US prices directly. In exchange, Pfizer secured a three-year moratorium on tariffs. The agreement is expected to be the first of several similar arrangements between the government and industry, reflecting a willingness on both sides to negotiate in a way that preserves the sector’s ability to invest in innovation. However, it is still uncertain whether these concessions will be enough or the administration will ultimately press for MFN pricing across all government-funded channels, such as Medicare.
Fund performance
The Company’s NAV increased by 3.9% in September, ahead of its benchmark, the MSCI All Country World Daily Net Total Return Health Care Index) which was up 1.3% (both figures in sterling terms).
Positive contributors relative to the benchmark in September were Merus, Cytokinetics and UCB.
Merus’s positive share price appreciation in 2025 has been driven by compelling clinical data in the field of head and neck cancer. Further, late in September the company announced that biotechnology peer Genmab intends to acquire the company in an all-cash deal representing a transaction value of approximately $8bn.
Cytokinetics’ strong performance reflects improving sentiment around key pipeline asset aficamten, which is in development for a number of muscle-directed cardiovascular disorders. Clinical data disclosures in late August and again in late September have been the key catalysts.
Belgian biopharmaceutical company UCB performed strongly with the key driver being challenges for potential competitors. More specifically, Moonlake Therapeutics released disappointing data for its lead pipeline asset sonelokimab, in development for the treatment of a skin disease known as hidradenitis suppurativa. More positive data, and subsequent approval, would have created a more competitive environment for UCB’s recently launched Bimzelx.
Negative relative contributors were AbbVie, DexCom and Penumbra.
The Fund had no exposure to AbbVie during the period, a stock that continues to appreciate following strong commercial execution, positive revenue revisions and a relatively risk-free, long-term growth outlook.
New devices are opening up new markets and technological advances are increasing efficiency
DexCom continues to struggle, with the market very much focussed on the safety of the company’s continuous glucose monitoring system, G7. In the near term, strong operational performance feels essential to drive a potential recovery and to allay the safety fears.
There was no thesis-changing news for Penumbra during the period under review.
We added positions in Centene and Teva Pharmaceutical Industries.
US-based managed care company Centene provides benefit plans with a primary focus on low-income Americans. After a period of margin and earnings pressure, a possible rerating could be driven by a faster-than-expected operational recovery.
Teva Pharmaceutical Industries, a company traditionally focussed on generics, is diversifying away from its generics core via the development and commercialisation of branded pharmaceuticals primarily focussed in areas such as schizophrenia and tardive dyskinesia (a condition where your face, body or both make sudden, irregular movements).
The new positions were funded, in part, by exits from Merus, Swedish Orphan Biovitrum and UnitedHealth Group.
Outlook
The pace of innovation in healthcare continues to accelerate, not just in respect of novel therapies. but also new devices are opening up new markets and technological advances are increasing efficiency. At the same time, increased utilisation is supporting revenue and profit growth across companies in a range of subsectors including healthcare distribution, healthcare equipment and healthcare facilities. With valuations attractive, it is not unreasonable for healthcare investors to look ahead with a high degree of optimism.
