• In a volatile month, the healthcare sector lagged behind the broader market once again and finished as the second-worst sector in the S&P500.
• News of increased reimbursements for Medicare Advantage were welcomed by the sector, and healthcare services became the best-performing subsector in April.
• The fund ended the month down in EUR and SEK, and slightly up in USD.
• Whether we see a continued “risk-on” environment or whether investors move toward more defensive companies, we believe the healthcare sector offers an attractive long-term set-up.

Portfolio Manager Camilla Oxhamre Cruse

Monthly comment

During April, the healthcare sector yet again lagged behind the general market, despite solid fundamentals, robust Q1 earnings and the further improving regulatory environment. We note that during the month, AI/tech and cyclical sectors were the main beneficiaries with the healthcare sector trailing and ending the month as the second-worst performing sector in S&P500. Within the sector, biopharma drove the narrative in the first half of the month supported by strong clinical data, continued M&A, and a positive funding backdrop. In the second half of the month, however, the sentiment shifted towards the insurance companies on the back of strong earnings and YTD lagging share price performance, with biopharma and medtech being sources of funds.

Despite the geopolitical turbulence, the S&P500 achieved its fastest recovery since 1982, rebounding from being down approximately 10 percent in the year to hitting new highs in just eleven trading days. The surge was largely powered by liquidity, renewed AI enthusiasm and investors covering macro-hedges in favor of single stocks ahead of the earnings season. Strategists at JPMorgan raised their year-end target for S&P500 due to the stronger outlook for technology and AI. The fear of missing out on the AI trade took over and as a result the market breadth hit a multi-year low.

Geopolitics drove significant volatility

Geopolitics continued to drive massive intraday swings. Interest rates and oil remained key inputs, with firmer macro-data and energy uncertainty keeping the growth and inflation debate in focus. For the better part of the month, investors largely leaned towards expectations of an eventual resolution of the Iran war.

The Fed voted on April 29 to hold the US interest rates steady keeping its ‘wait-and-see’ approach to the economic uncertainty sparked by the Iran war. This was Jerome Powell’s final meeting as Chair. The Senate Banking Committee voted to advance Kevin Warsh’s nomination as the next Fed Chair to the Senate, which is expected to be confirmed in a vote on May 11. The nomination was not without controversy as Warsh has signaled a desire to narrow the Fed’s mandate and overhaul its inflation framework. While historically viewed as a hawk who might keep rates high to combat inflation, Warsh has signaled a willingness to cut rates based on potential productivity gains from AI transformation.

Positive policy updates for the service sector

In early April, the Centers for Medicare & Medicaid Services (CMS) announced the finalized Medicare reimbursement rates. The rates for next year were set at a 2.48 percent increase – a substantial improvement on the nearly flat increase originally proposed. This is incrementally beneficial for insurance companies, although the companies continue to signal that the reimbursement levels still lag cost trends. The CMS also adjusted its approach to GLP-1 weight-loss drugs in Medicare, extending the temporary federal-founded BRIDGE program. Meanwhile, the BALANCE Model, in which insurers will take on the risk was postponed to 2028. The postponement also benefits insurance companies, giving them time to collect utilization and risk data before moving to the permanent BALANCE Model.

Earnings season upon us

Healthcare earnings for Q1 2026 have so far reflected robust top-line growth and disciplined operational execution across providers, medtech and pharma though profitability remains mixed as companies navigate shifting insurance trends and cost pressures. US health insurers emerged as the sector leaders during the month following a period of share price underperformance. The shift in sentiment was driven by favorable Q1 earnings results and improved regulatory clarity. The health insurance companies delivered better than expected results, with well-managed medical cost ratios and solid reserving methodology. Earnings for medtech was characterized by solid top-line growth and a strong focus on margin expansion despite rising operational costs and tough year-on-year comparisons. While many biotech companies are yet to report earnings, pharma delivered better-than expected Q1 numbers – sales increased on average by 9 percent and earnings grew by an average of 19 percent. Interestingly, Johnson & Johnson delivered another ‘beat & raise’ and set its sights on double-digit growth by 2030, which is very impressive given the size of the company.

The deal momentum in biopharma continued in Q1 with total deal value approaching USD 16bn. The strong deal activity reinforced sustained strategic demand and capital recycling. Current strategic trends emphasized ”precision tuck-ins” in the USD 1-8bn range rather than transformative mega-mergers. We noted that Eli Lilly announced three biotech acquisitions in April totaling close to USD 10bn in value. These transactions were part of a broader strategic push to expand its portfolio in oncology and neurological disorders.

Reflections

While the messages regarding the conflict in the Middle East remain highly fluid, recent strength across economic and earnings data suggests that the underlying bull market continues. Investors have piled into stocks benefitting from a still stimulative macro backdrop that is seeing a combination of cyclical and AI-driven broadening. While the market so far has mostly overlooked the conflict in Iran, the sentiment may gradually shift the longer the conflict continues. Given the opaque macro dynamics, the near-term outlook is difficult to predict. We will therefore outline the two scenarios we see as being the most likely:

• Resolution of the Iran conflict in the near-term: In the case of a near-term resolution of the conflict in Iran, we would expect a substantial relief rally driven by normalization of energy markets and a reversal of inflation concerns. We would expect a rapid de-escalation scenario to lead to a ”risk-on” environment in which the broader market, beyond tech/AI beneficiaries, could see a meaningful rebound as interest rates improved and consumer confidence returned. A peace scenario, in the near-term, would likely shift the focus back to positive structural growth drivers, innovation and small- and mid-caps.
• The Iran conflict drags on: If the Iran conflict continues, we would anticipate a prolonged period of volatility and a shift toward a ”recession playbook”, as sustained disruptions to energy supplies and global shipping routes threatened to anchor inflation at elevated levels. A long-term closure of the Strait of Hormuz could push oil prices even higher, forcing Central Banks to maintain ”higher-for-longer” interest rates until growth risks become severe enough to trigger defensive easing. In this environment, the market would likely rotate away from cyclical and high-valuation names toward high-quality defensive sectors including large cap healthcare companies with strong earnings and cash flow outlooks.

We note that whether a more ”risk-on” market continues, or if investors turn to more defensive names, we believe the healthcare sector will offer an attractive long-term set-up. The healthcare sector is down about 10 percent from the high in January and it continues to trade at a discount to the broader market despite more clarity of policy headwinds, strong underlying growth prospects, and a positive M&A trend. We have also seen a notable resurge of the biotech IPO market following several sluggish years, with activity in the first quarter already on pace to exceed historical levels. Hence, the financial activity in the sector is strong, and fundamentals remain solid providing an interesting set-up for the longer-term. However, near-term volatility may continue as uncertainties around the Iran conflict persist.