• The healthcare sector retreated in December following three months of strong performance.
• The fund delivered a negative return for the month. While pharmaceuticals contributed positively, other subsectors weighed on overall performance.
• For the full year, the fund gained 7 percent in EUR and 21 percent in USD. This discrepancy highlights the significant impact of the weakening dollar on Euro-denominated share classes.
• Looking ahead, we believe 2026 could be a year of “normalization” and see potential for the healthcare sector and the fund to deliver.

Monthly comment

The healthcare sector was hit by profit-taking in early December following three months of strong performance.

The funding environment continued to improve for biopharma companies

In early December, the US Federal Reserve (the Fed) cut interest rates by 25 basis points as was widely expected. Despite this, the US 10-year Treasury yield rose marginally during the month.

Beneath the surface, we continued to see clear signs of an improving funding environment for biotech companies. Since the Fed’s initial rate cut in September 2025, capital has flowed into both private (VC, PE) and public markets (follow-ons and IPOs). Total biotech funding was up 200 percent year-on-year in December. Despite this year-end surge, total biotech funding for the full year, 2025, finished down 20 percent, due to the weak first half-year.

Subsidies galore

We have previously highlighted the enhanced subsidies for Individual Exchanges (also known as Obamacare or HIX). HIX are online marketplaces for private health insurance that are heavily government-subsidized. Some of these subsidies expired on December 31, which will result in a price shock for many Americans covered by HIX plans. According to the Kaiser Family Foundation, healthcare premiums within HIX are expected to rise by over 100 percent on average during 2026.

A political compromise in January which would grant an extension of the subsidies remains a possibility but is unlikely. Many Republican members of Congress oppose an extension, which would also be administratively complex to implement now that the subsidies have formally lapsed. However, the upcoming midterm elections in November are putting pressure on certain members of Congress, which speaks in favor of a potential deal.

Attention was also directed toward another major subsidy program in December: Directed Payment Programs (DPPs). These programs primarily provide subsidies to rural hospitals with a high proportion of Medicaid patients. Several states have not yet approved their DPP programs, which has caused some nervousness among investors. These subsidy programs are of vital importance to many hospitals and, by extension, to capital intensive medical technology companies, as hospital capex budgets are directly impacted by these funds.

First oral GLP-1 drug approved for obesity

During the month, the first GLP-1 obesity treatment in tablet form was approved: Novo Nordisk’s oral Wegovy. The product has been on the market since 2019 under the name of Rybelsus but was previously only approved for the treatment of type-2 diabetes. The oral market for obesity drugs is likely to dominate much of the news cycle in 2026 and is expected to capture significant market share from the currently dominant, injectable market. Eli Lilly is expected to receive approval for its counterpart, Orforglipron, sometime during 2026.

Reflections

An improved funding environment for biotechnology, increased M&A activity, and onshoring are three positive themes that could dominate the healthcare sector in 2026. The first two are driven partly by a more expansive fiscal policy in the US, and partly by greater political clarity in the wake of the Most Favored Nation (MFN) agreements.

The MFN agreements also include commitments from major pharmaceutical companies to invest billions of dollars in repatriating parts of the drug manufacturing chain to the US. This will yield positive downstream effects for Life Science Tools companies that provide the instruments and consumables used in the development and manufacturing processes. However, constructing these facilities takes time, and the initial orders may not materialize until 2027.

An eventful start to the new year

The world’s largest healthcare conference takes place in mid-January. Hundreds of corporate meetings will set the tone for 2026, serving as a vital ”temperature check” for many of the fund’s holdings.

Furthermore, a ruling is expected early in the year regarding the legal basis for the Trump administration’s tariffs. A potential strike-down of these tariffs would create uncertainty regarding the US budget deficit and cause significant market volatility.

Key potential market catalysts in May and November

A new Fed Chair is set to be appointed by President Trump in May, 2026, when Jerome Powell’s term expires. The integrity of the new chair will likely be scrutinized, and as always, the bond market’s assessment will be decisive.

Another major milestone follows in November as Americans head to the polls. 35 of the 100 Senate seats and all 435 seats in the House of Representatives will be up for grabs. Historically, the incumbent party tends to underperform in midterm elections. Currently, the Republicans hold a majority in both chambers of Congress, but the Democrats are the favorites to reclaim a majority in the House.

How Trump will view  Robert F. Kennedy Jr., his controversial Secretary of Health and Human Services (HHS), following the election is another key question. While RFK Jr. currently mobilizes a key voter base, his strategic utility may diminish significantly post-election, as he remains a polarizing figure both within the Republican party and among his staff at the HHS.

Lastly, we continue to closely monitor geopolitical developments and assess their potential impact on the fund’s performance and strategic outlook.

Could 2026 be the year of healthcare?

The healthcare sector enters 2026 from two excellent starting points: low allocations and low relative valuations. In other words, many large asset managers remain underweight the sector, and there remains substantial valuation support. 2025 was characterized by political uncertainty regarding drug pricing and a weak first half-year due to a poor funding environment and low M&A activity.

However, the latter two points improved markedly during the final months of 2025, and the sector has continued to demonstrate impressive innovative power. If this momentum continues through 2026, we believe the sector is well-positioned to deliver.