Bellevue Healthcare provides a differentiated approach to healthcare stock picking, says research house

BBH offers a very differentiated way to invest in the bombed-out healthcare sector…

That is the headline on a note from Kepler, the boutique research house in its note on Bellevue Healthcare Trust PLC (LSE:BBH).

BBH's concentrated portfolio of up to 35 stocks offers a distinctive approach to gaining exposure in this burgeoning market. The fund prioritises investments that align with long-term sustainability in healthcare systems.

Kepler acknowledges that BBH's management, consisting of Paul Major and Brett Darke, has generally delivered on their objectives since the fund's launch.

Three-year view

These include outperforming the MSCI World Health Care Index over a three-year period and delivering double-digit returns in the same timeframe.

The research house notes that BBH has recently trailed behind due to its selective investment approach, particularly in a sector dominated by a limited number of stocks such as Eli Lilly and Novo Nordisk (NYSE:NVO).

Kepler highlights that BBH's distinctive advantage lies in its commitment to small- to mid-cap stocks, offering high growth and innovation potential within the healthcare sector.

BBH team has shown its mettle

Despite recent setbacks in the fund's performance due to this strategy, analysts believe the managers have shown their mettle in a highly volatile environment and the potential for future outperformance remains strong.

According to Kepler, BBH's unique proposition lies in its significant deviation from its benchmark and peer group.

By focusing on innovative companies that enhance the healthcare ecosystem, BBH provides investors with exposure to a unique segment of the sector that promotes efficiency and improved patient outcomes.

Despite its short-term underperformance, the research boutique maintains optimism about BBH's long-term prospects, thanks to the management team's consistent investment process.

Alpha potential 

The firm suggests the current market scenario, driven largely by macro factors, could be temporary, and once the market refocuses on fundamentals, BBH's alpha generation capabilities may come to the fore.

Currently, BBH trades at a discount to net asset (NAV) of approximately 6%. Kepler suggests that for investors who share the management's conviction in the healthcare sector's long-term prospects, this discount could be an enticing opportunity.

Nevertheless, the research firm cautions potential investors about certain risks such as BBH's narrow portfolio focus, NAV volatility, and the potential for a declining dividend if the NAV falls year on year.