BBH could be poised for strong performance as the rate cycle eases…by Thomas McMahon




Bellevue Healthcare (BBH) is an actively managed healthcare fund with an investment strategy that aims at harnessing the exponential growth potential of companies in the sector. Managers Paul Major and Brett Darke look to identify those businesses that can contribute to solving structural problems in creaking developed-world health services, and run a concentrated, highly active portfolio with a structural overweight to small- and mid-caps.

The portfolio saw a sharp bounce of outperformance in late 2023 as markets appeared to conclude that a peak in the interest rate cycle was in sight. This follows a sustained period in which growth and small-caps have both been out of favour, thanks to the pressure from rates and the potential recession (see Performance). Yet the managers argue the portfolio is still looking very cheap compared to history when factoring in the high growth expected, and earnings have been resilient, as they tend to be in the more defensive healthcare sector. While they have moderated their Gearing somewhat, and remain wary in the very short term, Paul and Brett think a new period of outperformance for growth and for mid-caps could be on the horizon as rates decline.

The trust pays a dividend worth 3.5% of the NAV from capital where necessary, based on the NAV at the previous fiscal year end, and currently has a prospective Dividend yield of 3.5%.

The shares trade on a 5.9% Discount at the time of writing. The board has invested significant amounts of cash in buying back shares, while there is also an annual redemption facility offering an exit close to NAV.


Analyst’s View


BBH offers access to some exciting trends with the potential to deliver strong shareholder returns. Paul and Brett have a detailed view of the key issues facing healthcare systems and have built a portfolio full of companies offering a wide variety of solutions in a broad range of areas. This is unashamedly a growth fund, and history suggests the return target of 10% p.a. is deliverable. However, the managers are very risk-conscious in their approach, and this comes through in a number of ways. These include the tactical use of gearing, the reticence to follow the market into fad stocks, the attention paid to the valuation of individual companies, as well as the importance placed on diversification. We think all this adds to the appeal of the fund as a long-term holding.

The cautiousness comes through in the managers’ current outlook too. While they think the groundwork has been dug for a renewed focus on growth equities, they are conscious that volatility is quite likely to remain high. While they argue the valuation decline in the high-growth mid-caps versus the lower-growth large-caps has been significant, they note it is easy to be burned by being too early.

However, while this may be a strong rationale for holding off on gearing, we think for long-term potential shareholders, this could be a good time to get exposure. The rate cycle certainly seems to have peaked, and we would argue that even just the removal of the risks of rate hikes should itself create the prospect of a rally. Additionally, the mid-single-digit discount offers some comfort for prospective shareholders, particularly considering the commitment made by the board to keeping it in check via buybacks and a redemption facility.




  • High growth potential with areas of concentration potentially set for a rebound
  • Specialist managers with long experience in the sector
  • Strong commitment to managing the discount




  • An active approach increases the potential for underperformance as well as overperformance
  • Gearing increases downside risks as well as return potential
  • Focus on a single sector and dominance by one country (the US) brings specific risks


View the research paper on BBH here >


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Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Bellevue Healthcare. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.


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