Published Date: April 30, 2025
Author: HANetf
Market in review
The Health Care sector rebounded in the first quarter of 2025, navigating a volatile but opportunistic landscape. While macroeconomic headwinds—such as elevated interest rates and tariff noise—continued to pressure long-duration assets like biotechnology, we observed early signs of investor re-engagement, especially as capital rotated from mega-cap technology into more reasonably valued growth sectors. Health Care modestly lagged broader growth indices early in the quarter, only to close strong on improving sentiment toward commercial-stage biopharma and select medical technology names.
ETF outflows in Health Care moderated from 2024’s extremes, and several key sub-industries showed resilience despite policy uncertainty in Washington. The FDA and CMS remain in a transitional phase following high-profile leadership changes, but sentiment around regulatory disruption has started to stabilize. Sell-side commentary and bipartisan support for U.S. biotech investment further buoyed investor interest. Notably, the FDA’s approval cadence remained constructive, and a recently proposed $15B federal biotech initiative reinforced the sector’s role in both innovation and national security.
While near-term catalysts remain sparse for early-stage biotech, we believe commercial-stage platforms with differentiated technologies are increasingly attractive, especially given compelling valuations and rising M&A optionality. As such, we continued to emphasize quality across the portfolio while taking advantage of selective dislocations in small- and mid-cap growth.
Quarter performance – contributors and detractors
From an industry perspective, relative strength within health care services was outweighed by weakness from certain exposures within biotechnology. Additionally, investments within health care equipment and tools were headwinds amid a broader de-risking of rate-sensitive assets and tariff-related volatility.
Biopharma
Biotech was a net detractor in the quarter, primarily due to Vaxcyte, which weighed heavily despite producing compelling Phase 2 infant vaccine data. Shares declined following investor overreaction to secondary endpoint misses and broader sentiment pressure stemming from regulatory turnover at the FDA. We reaffirmed conviction in the name based on its de-risked adult data, large cash balance, and highly strategic platform.
In contrast, Ascendis Pharma was a standout contributor. Momentum built following encouraging commercial trends for Yorvipath and favorable differentiation versus AstraZeneca’s competing therapy. Ascendis’ platform story continues to resonate, with strong uptake in endocrinology and several pending catalysts that could unlock further value. We added to the position during periods of volatility.
Intra-Cellular Therapies also drove returns following its acquisition by Johnson & Johnson at a 40% premium. We exited the position post-announcement, capturing full upside from the M&A event.
Health care providers & services
Health care services contributed meaningfully, led by Option Care Health, which rebounded sharply after overdone Q4 weakness. As investor confidence returned in its post-acute care strategy and capital return discipline, shares rose 55% in the quarter. We trimmed the position into strength but maintain a favorable long-term view as home-based care adoption accelerates.
Health care equipment
Performance in equipment was mixed. Intuitive Surgical started the quarter strong but ended weak as growth unwind dynamics and Mexico-based manufacturing exposure weighed amid rising trade rhetoric. While the dv5 launch remains on track, we remain mindful of macro overlays affecting high-multiple franchises.
Broader medtech positioning was a modest drag, though we selectively added to some positions like Glaukos Corp during March pullbacks, reflecting our constructive stance heading into earnings season.
Source: Westfield Capital Management as of 31.03.2025. Past performance is not indicative of future performance and when you invest in ETFs your capital is at risk.
Buys and sells
During the quarter, we purchased GeneDx Holdings, a leader in genomic diagnostics for rare diseases and pediatrics. The shift from legacy testing to higher-margin WES/WGS testing is driving rapid revenue growth for the company and has led to margin expansion. Additionally, we believe that continued momentum in NICU and newborn screening provides further upside potential.
During the quarter, we sold our position in biopharmaceutical developer Intra-Cellular Therapies, Inc, following the announcement that Johnson & Johnson would be acquiring the company at a 40% premium to its share price at the time.
Industry overweights and underweight
Positioning remains balanced with a tilt toward innovative, cash-generative companies that we believe are underappreciated by the market. Approximately 45% of the portfolio remains allocated to biotechnology, with an emphasis on commercial or near-commercial names. We modestly reduced exposure to medtech following Q1’s rally in growth equities and redeployed capital into high-conviction biopharma ideas.
The Biotechnology industry is our largest overweight relative to the index as of 3/31/2025. Following a period of overcapitalization and investor euphoria that peaked in February 2021, we have seen a precipitous decline in valuations, all while many high-quality companies have made significant progress in the clinic and have dramatically improved intrinsic value. We also believe an unprecedented wave of merger activity could be on the horizon.
The Pharmaceuticals industry represents the portfolio’s largest underweight as of 31/03/2025. We continue to believe that the industry includes many interesting opportunities, and the industry represents a large absolute weight in the portfolio, however we remain underweight given our focus on risk-adjusted opportunities within the industry.
We remain constructive on the Health Care sector and see attractive risk-reward opportunities heading into the second quarter. Biotech valuations remain depressed on a multi-year basis despite rising fundamental momentum, particularly among commercial-stage names with platform potential. Regulatory headlines continue to create noise, but we believe the long-term innovation cycle remains firmly intact.
We are encouraged by a potentially more lenient M&A backdrop under the new administration and expect larger biopharma companies to become more aggressive acquirers, particularly as patent cliffs loom. This supports our overweight in biotech, where we continue to lean into platform stories like Ascendis and Soleno Therapeutics.
In medtech, we are selective, favoring differentiated technologies over commodity exposure. Managed care remains a small part of our universe but is positioned for recovery under a more favorable policy setup, particularly within Medicare Advantage. Our tools exposure is balanced, as we monitor capex trends and tariff implications.
Overall, our portfolio remains tilted toward idiosyncratic, high-conviction names with multiple levers for value creation. We continue to prioritize commercial-stage biopharma with near-term catalysts, durable growth visibility, and scalable platforms.
Source: Westfield Capital Management. Additional sources available upon request.
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