The beginning of the calendar year is never dull in healthcare, and this year was no different. In our January Musings piece, we noted that the healthcare sector’s extreme underperformance and adverse fund flows likely meant the whole sector was due for a catch-up trade, and so far that call has been rewarded.
Through the JP Morgan healthcare conference (the Superbowl of healthcare investing) and most of the earnings season, our Medtech & Healthcare thematic basket has managed to add alpha and outperform the healthcare indices. Our model allocation shifts benefitted from both sector outperformance, having cut basket short exposure, and from favorable announcements from many of the longs.
Now, with the calendar for conference appearances and earnings updates relatively open, company-specific updates should take a backseat in terms of driving stock performance, and we expect to see a reemergence of narratives as the dominant factor driving price. Specifically, we expect that policy developments out of DC will play a major role in influencing returns in the coming months. Healthcare policy has been a major focus of the Trump 2.0 agenda and a major subject of newsflow from the new administration. With RFK’s confirmation as HHS secretary nearly certain (see our previous healthcare update, Markets Gone RF-Krazy) and with progress on several of President Trump’s other healthcare policy appointments, we expect this dynamic to continue.
Given that backdrop, we are taking this opportunity to explore some of the dominant themes within the Trump 2.0 healthcare agenda and update our basket accordingly. We do all of this with the caveat that we are not interested in debating the merits, drawbacks, and accuracy of the philosophy behind this agenda – we are investors, not policy wonks, and we take the world as we find it.
We also consider recent developments in the Artificial Intelligence/Machine Learning theme (see our most recent update: DeepSeeking Answers) and how they might impact innovation in Healthcare & Medtech. We add some new holdings and reiterate our stance on existing ones based on how they might fare in the agentic AI paradigm and our preliminary “data, design, distribution” framework for our performers in the second Phase of the market’s AI trade.