WEBINAR REPLAY: January 2023 Investor Name

0
3


Tune in for a dialogue in regards to the present traits in disruptive tech together with what to make of the This fall efficiency throughout our innovation indices: ROBO, THNQ & HTEC.

Jeremie Capron:

Good day everybody. Welcome to our January 2023 investor name. My title is Jeremie Capron, I am the Director of Analysis right here at ROBO World, and I am speaking to you from New York. And with me at present, my colleagues, Lisa Chai and Zeno Mercer. And we’re going to speak robotics, automation, AI, healthcare applied sciences. We’ll share some ideas in regards to the latest market developments, after which we’ll take a more in-depth take a look at a few of our index portfolios. And the primary one is ROBO, R-O-B-O. That was the primary Robotics Automation Index. It began greater than 9 years in the past, in 2013. The second is THNQ, T-H-N-Q. That is the Synthetic Intelligence Index. The third one is HTEC, H-T-E-C. That is the Healthcare Know-how and Innovation Index. And these portfolios mix analysis with the advantages of index investing. They’re composed of best-in-class corporations from all over the world.

We’ve small, mid, giant caps that we analysis, and we rating on numerous metrics. And the very best scoring shares make it into the portfolios. After which we’ll be taking your questions, so be happy to sort them into the Q&A field on the backside of your display screen. And I believe for all of us in funding business, we’re glad to show the web page on the yr 2022, which actually was one for the historical past books when it comes to the hardships delivered to fairness and bond buyers, however particularly to huge tech, the place we have seen among the most brutal declines after two years of euphoria. And the ROBO World Innovation indices weren’t resistant to that, and so they underperformed world equities for the yr 2022, however actually to not the identical extent as among the extra concentrated, disruptive expertise indices on the market. Inside this new yr, 2023 is a yr of alternative, as a result of there’s an enormous distinction between the declines that we noticed within the inventory market, and what automation corporations are telling us and displaying us when it comes to their file order consumption and their, in lots of instances, file order backlogs.

So within the last quarter of the yr, the ROBO World Innovation indices noticed fairly good good points, and a few inexperienced shoots which may be setting the stage for progress to come back. So let’s begin with robotics and automation, and the ROBO index portfolio that was up 12% in This fall. It outperformed world equities by somewhat greater than two share factors, with some fairly robust good points in Europe, that was up 25%. And likewise in logistics automation, that was up some 20% or so. And I believe it is price discussing at present, logistics automation right here, as a result of that is an more and more necessary a part of the robotics business.

And lots of buyers in public equities are simply not uncovered to this large progress alternative. The truth is, since we launched the ROBO index in 2013, this has been the very best performing of the 11 sub-sectors that composed the portfolio. We noticed a complete return of greater than 300%, 340% by means of the tip of 2022. And that is after the substantial decline final yr, when the sector was down greater than 40% in 2022. So what is going on on right here is that there’s an arms race to automate provide chains and warehouses all over the world. And that race was began by Amazon, which is now working one of many largest warehouse robotics operations on the earth. And that is actually enabling more and more quick supply instances from click on to order to supply. And all people else within the e-commerce business is mainly scrambling to compete with this operational excellence. And it isn’t solely in regards to the growth in e-commerce, but in addition, conventional retailers which might be constructing omnichannel operations which might be then feeding that vast transport and logistics business, that’s dealing with a major label scarcity problem these days.

So there’s great progress in demand for logistics and warehouse automation, and it is necessary to know that greater than 90% of the 20,000 or so warehouses within the US at present haven’t any automation in any respect in additional than 90% of these warehouses. So, we have recognized the very best at school corporations which might be on the forefront of this pattern. And at present, we’ve 10 ROBO index members which might be centered on that, and so they account for about 14% of the portfolio. So you will see corporations like Daifuku in Japan, that’s the world chief in materials dealing with tools. You’ve GXO, that’s utilized by among the largest blue chip corporations to outsource their order achievement or logistics operations. You may have corporations like Zebra, that’s the world chief in automated identification and different monitor and hint applied sciences for provide chain. And Zebra was really an early investor in Fetch robotics that is made the headlines this yr.

Fetch robotics makes autonomous cellular robots for warehouses and distribution facilities and manufacturing and so forth. You may discover corporations like Manhattan Associates, that could be a chief within the warehouse administration system, so that’s on the software program facet. You may discover a firm like Cardex, that’s based mostly in Switzerland, that makes automated storage and retrieval methods. After which you may have Auto Retailer from Norway, which is a warehouse robotic expertise firm that invented the dice storage automation. That may be a very dense resolution for auto achievement, which you can mainly convey into an current warehouse and automate it in a flip turnkey trend. And so, Auto Retailer was the very best performing inventory within the ROBO index in This fall, it was up greater than 65%. That is coming after a really risky yr because it went public on the finish of 2021. They’re doing rather well. You take a look at a gross sales progress that is effectively over 50% yr over yr, and enterprise that is already very worthwhile with EBITDA margins over 50%.

So, that is logistics. However as lots of you recognize, the ROBO portfolio is uncovered to many different very robust robotics purposes, from manufacturing to healthcare and enterprise course of and meals and agriculture. And in reality, the ROBO portfolio could be very diversified. And it isn’t solely throughout the 11 sectors, but in addition throughout market cap. You’ve about 40% in giant caps, however greater than 60% in small and mid-cap corporations. And it is also diversified throughout areas, and that is a very world portfolio. The truth is, you may see round 40, 45% in US shares and about 55 to 60% in one other 12 completely different international locations. And the explanation I convey this up at present is as a result of ROBO has nearly excessive publicity to Asia, at round 30%. And that is necessary as a result of, first, Asia is the place we’re seeing the strongest progress in demand over the long run. And China already is the biggest marketplace for robots at present.

And second, it is as a result of we’re seeing China reopening and enjoyable, the overwhelming majority of the COVID associated constraints which were in place and actually holding again investments within the final two years. So with China reopening, we’re fairly optimistic with regards to the Asian piece of ROBO. And that’s not a lot Chinese language corporations, however actually, exporters into China. So we’ve about 20% in Japan. Corporations like Fanook and Yaskawa in manufacturing unit robots, after which you may have a great variety of the expertise and market leaders in key elements that go into automated methods, like excessive precision gears from Harmonic Drive or Nabtesco. You’ve linear movement management from THK, you may have pneumatic elements from SMC and so forth. And with the massive transfer within the Japanese yen within the final 12 months, the Japanese exporters have gained a major aggressive benefit that we predict they’ll profit from this yr.

Now earlier than I move it on to Lisa, I need to come again to my earlier remark in regards to the discrepancy between inventory costs, and the truth on the bottom within the automation business the place demand stays very robust, regardless of all of the speak of recession. And I am not saying it is not going to soften, however it’s outstanding how the basics have remained very robust. And on the identical time, valuations have dramatically compressed. And so at present, the ROBO index is buying and selling round 20 instances earnings. That’s down from a excessive of greater than 35 instances, in 2021 on the excessive. And at present, we’re on the low cost to the long-term common valuation. And within the meantime, we see the earnings of these finest at school robotics corporations. They’ve remained on that basically good trying progress trajectory. The truth is, we’re gross sales progress of 11% in 2022. And the expectations for this yr, 2023, are additionally round low double digits. And that’s considerably above what is predicted from the broader market, the S and P 500 or world equities. So with that, we’ll move it on to Lisa to debate healthcare expertise

 

Lisa Chai:

Thanks, Jeremy. ROBO World Healthcare Know-how Innovation Index HTEC is a method that we launched in 2019 that captures the expansion of the digital transformation that we’re seeing within the healthcare business at present. It has a really robust concentrate on the following technology diagnostic options, in addition to the innovation that we’re seeing in medical IOT and data-driven applied sciences. After a number of difficult quarters, HTEC had a stable efficiency within the fourth quarter, rising 6.9%. The efficiency was pushed by robotics, medical devices, and diagnostic sub-sectors, which all gained double digits. Whereas underneath efficiency through the quarter had been in genomics and information analytics sub-sectors. Total, 2022 was a difficult yr for HTEC index members versus a world market indices. So we had been actually inspired by the robust efficiency through the fourth quarter with six of the 9 sub-sectors posting constructive returns. HTEC index for the yr declined roughly 33% in comparison with broader market within the sea of 18% decline.

For the yr, precision medication was the very best performing sub-sector, down nearly 10%, whereas the genomics and information analytics had been the worst performing sub-sectors. So with genomics declining over 60% 2022, we need to share our ideas on the sub-sector and spotlight a number of of our index members that drove the efficiency. We strongly imagine that we’re nonetheless on the early innings multi-year cycle of genomic expertise, taking a middle stage in drug discovery, and likewise enabling that life-saving prognosis for uncommon ailments in most cancers. The index members within the house are actually reworking healthcare. The largest cause for the selloff was that many of those corporations had been buying and selling at very excessive valuations as a result of robust progress prospects, and buyers had been ready for the corporate to only develop into the analysis. Total, we imagine the basics haven’t modified. The truth is, we’re seeing breakthroughs and acceleration investments from giant pharma to medical gadget makers within the genomic house.

Whereas we noticed steep selloff and perhaps among the valuation resets had been mandatory, we’re already beginning to see the genomic corporations recovering from among the deep losses that we noticed prior to now yr. Corporations in genomics and precision medication sub-sectors, for instance, like VeriCite, Backyard Well being, and Exec Sciences, are beginning to present signal of restoration. For instance, index member VeriCite beat and raised the forecast throughout fourth quarter, pushed by larger than anticipated gross sales at their most cancers diagnostic check. VeriCite makes use of AI enabled genomic expertise to hurry up medical prognosis so medical doctors can present early remedy for these at excessive threat for thyroid and prostate most cancers. In the meantime, Backyard Well being declined over 70% final yr, as the expansion slowed to only lower than 20% high line progress from 30% progress from the prior yr. They’re rising to be an necessary participant within the liquid biopsy market within the areas of colorectal most cancers.

And the shared costs could proceed to be risky, however they do have one of the crucial fascinating portfolios in most cancers monitoring, profiling, and diagnostics. They’re within the early phases constructing this platform and demonstrating the facility of genomics and epigenomics, which is an space that you’ll hear extra about within the coming quarters. Shares of backyard are already getting a great stability for the yr. We expect many of those transformers of healthcare are actually oversold as buyers de-risk their portfolios within the final yr. Precise Sciences, one other index member, which makes a speciality of most cancers diagnostics, have shared value achieve of fifty% through the fourth quarter. And [inaudible 00:14:50] however one other 20% was a great indication that these corporations had been in an oversold state of affairs. So whereas the businesses in our genomic sub-sector did expertise great volatility prior to now yr, the extreme a number of compressions have additionally offered vital upside alternative for 2023.

Lengthy-term drivers and demand for genomic applied sciences have solely strengthened, and we imagine that our index members are very effectively positioned for remainder of the yr. In the meantime, we’re additionally very excited in regards to the medical instrument sub-sector, which holds the largest ready for HTEC at about 25%. It skilled robust good points through the quarter, pushed by hospital procedural restoration, and a really giant M and A deal for considered one of our index members. In November of final yr, we noticed one of many largest ever acquisition within the med tech business, with Johnson and Johnson buying a biomed, our HTEC index member that we’ve held because the creation of the technique. The biomed was acquired for 16.6 billion by J and G through the quarter, a 50% upside from the closing value. The corporate developed the world’s smallest coronary heart pump, and had over 18 years of revenue progress, and was effectively on its method in disrupting the 77 billion greenback cardiovascular business when it was acquired.

Whereas medical instrument sub-sector gained about 12% through the quarter, it did negatively affect the attribution for the yr, as a consequence of heavy weighting of the index and ongoing provide chain disruptions that hit lots of the gadget corporations. Long run, we’re very bullish within the medical instrument sub-sector, as many of those index members not offering simply the important merchandise for the medical procedures, however we’re seeing great innovation accelerating and environments appears to indicate indicators of enchancment as persons are getting extra checkups, and guide their appointments for his or her surgical procedures that they’ve held off through the pandemic. As we glance out into the yr, we might really feel actually strongly that our index numbers with subsequent NextGen Healthcare Options will proceed to be in robust demand because the world goes again to the pre-pandemic ranges. And our HTEC could be very effectively positioned to profit from a lot of the secular progress drivers on the market. Thanks. And now I’ll flip to Zeno, who will talk about THNQ.

 

Zeno Mercer:

Thanks, Lisa. Now I will speak in regards to the ROBO World Synthetic Intelligence Index THNQ, which offers publicity to corporations all over the world main the AI revolution throughout infrastructure in each broad and vertical purposes which might be increasing GDP, creating new markets, and bettering human situation. We launched the index in 2018, and the house has seen unimaginable progress and progress since that point. It could be remiss to not speak about generative AI and chat GPT, however first, we’ll cowl some This fall highlights and efficiency. The index row is 4.4%, with a continued fall in valuation all the way down to round 4.7 EV gross sales on the yr finish, with efficiency down 45% because the November 2021 peak, the place it was buying and selling at 9.2 ahead EV gross sales. So reported Q3 earnings noticed gross sales progress of 18.5%, which is under the long-term common of 23%. And on the flip facet, we noticed EBITDA progress speed up to 32% progress.

So, breaking down the efficiency, we noticed eight out of the 11 sub-sectors within the constructive territory, with semiconductor, shopper, enterprise course of, manufacturing unit automation and e-commerce up. Whereas we noticed what had been a multi-year lengthy sub-sector darling, community and safety down 8.1%, with corporations like CrowdStrike down 36% on conservative steering cuts for 2023. Huge information and analytics was down 4.7%, and I might like to spotlight that Ford EV gross sales have dropped from a relative excessive of 13X all the way down to 4.2X. An organization I need to speak about rapidly in that sub-sector, and massive information analytics. Alteryx, which is transitioning from a pure play observability platform right into a extra deployable, automation platform for the enterprise, was down 9%, even with a 12% high line beat and steering raised 14% for income and a 30% EPS increase. We additionally noticed Mongo DB and Splunk decline, and these are all now at or under all their pandemic good points.

We had been optimistic going into 2023 that that is the yr of AI primetime for adoption and deployment. From a monetary perspective, out of our 68 holdings, 90% are projected to have constructive EPS this yr, with as many as 5% anticipated to cross that threshold within the profitability. So how we deploy and take a look at our index and allocation, we’ve 54% into infrastructure presently. And breaking that down, we have got huge information analytics, semiconductor, community and safety, cognitive computing, and cloud suppliers. So I need to briefly spotlight SEMI, which represents the biggest ready right here.

Should you had been right here for our final name, you may bear in mind me speaking about SEMI being useless, long-live semi. And at that time limit, SEMI had been the worst performing index of the yr, everybody was very nervous in regards to the house, seeing declines and stock construct up. And what’s occurred since then is, A, we had the CHIPS Act handed, which was really within the third quarter, however SEMI was our greatest performing sub sector, and we noticed a number of corporations, particularly these tied to AI, which is all of our corporations, cloud and automotive, outperforming the final, exterior of THNQ, corporations which have larger publicity to shopper markets, PC and Cell, which is seeing a slowdown as a consequence of over-saturation, inflation, et cetera.

So we noticed some corporations with some nice efficiency, and a few of that is only a rebound, however they’re nonetheless buying and selling effectively off at any form of excessive. So we had corporations like Infineon up 38%, Amberella up 46%, ASML up 32%, and Nvidia up 20%. Piggybacking off that, we have seen over 200 million {dollars} in investments introduced in US semiconductor manufacturing capabilities anticipated of the following decade, benefiting from the CHIPS Act passage. A pair different highlights embrace Amberella saying a partnership with Continental for superior driverless methods and sensible dashboards. ASML introduced plans to spice up CapEx to supply their flagship excessive ultraviolet machines.

And this anticipated enhance is predicted to generate extra six to 10 billion {dollars} in income from their steering by 2025. So, that is a reasonably large enhance of their anticipated demand from their prospects. Their prospects being corporations like Taiwan Semiconductor, Intel and Samsung and different huge foundries. Regardless of this information, ASML remains to be buying and selling 25% off earlier highs. Now switching over to the purposes, which incorporates sub-sectors, consulting providers, enterprise course of, e-commerce, healthcare, manufacturing unit automation, shopper, we noticed shopper and e-commerce as leaders right here with shopper up 13% and e-commerce up 6%. The flip facet of this additionally, we had seen these two sub-sectors additionally, the opposite largest laggers alongside semiconductor up till Q3. So we’re seeing an indication of resurgence and reversal of oversold situations, with robust efficiency from Shopify, Netflix, reserving.com and jd.com. Now, I might like to change again over to what I previewed earlier, which was generative AI.

In the course of the fourth quarter, we noticed the introduction of the publicly out there Chat GPT, which is from Open AI, which is partnered with and runs on index member, Microsoft’s Azure AI platform. So I believe everybody’s considering proper now, what finish markets, enterprises, human habits adjustments may very well be affected? And the way does that change the stream of worth throughout society in organizations and governments? We anticipate Microsoft, for instance, to combine this tech throughout all merchandise, as they’ve unique entry to license the backend expertise versus the general public dealing with tech resembling Chat GPT, which is what is out there for us to play with proper now. And so we anticipate this commercialization and subsequent downstream utilization to additional profit and speed up the house and adoption of AI. Core enterprise merchandise, web page and picture technology, communication, and even healthcare will be affected right here. As a reminder, Microsoft acquired Nuance, which offers conversational AI and instruments for healthcare resembling transcribing.

And we’re excited to see how that might assist cut back administrative burden within the healthcare house. And general, we’re excited to see what will be constructed to enhance constructive human experiences right here. So shifting again to that Azure AI platform, which is what that is working on, do not forget that, that itself makes use of many elements that comprise the AI stack, which many individuals do not realize or take into consideration. You see this on the floor, after which beneath is, consider an iceberg principle. So you have acquired different index members resembling Pure Storage, Arista networks. After which many different involvement software program growth and developer operations which might be within the index, that present ongoing software program assist and instruments to maintain this uptime. To verify it is working securely. So we anticipate enhance of AI community and cybersecurity spend to come back from elevated utilization right here. A latest McKinsey report that got here out on the state of AI on this final This fall, highlighted that almost 50% of organizations that they surveyed have no less than one enterprise unit using AI, with the very best share being robotic course of automation.

They usually’re seeing very clear advantages on price discount and income enhance. So there is a distinction between adoption and exploring, experimenting, after which driving enterprise. And proper now, we’re in between that exploring and experimenting stage. So we’re actually within the early innings right here when it comes to adoption and spend within the house. And we anticipate, for instance, generative AI to be doubtlessly 100 billion plus business over the following decade because it turns into extra built-in into completely different merchandise and components of our lives. And I might like to spotlight that whereas we’re seeing file layoffs, AI spend is predicted to speed up this yr. So we even imagine that, in a harsh surroundings, this pattern will persist as the necessity for reliability, uptime, product modes, price discount will drive aggressive financial demand. With that, I might prefer to move it again to Jeremie, and yeah.

 

Jeremie Capron:

Okay, thanks Zeno and Lisa, and now we’re going to take your questions. So be happy to sort them into the Q and A field on the backside of your display screen. And I need to remind all people that on the finish of final yr, we printed our 2023 traits report wherein lots of the extra thrilling progress tales round robotics, healthcare expertise and AI are defined intimately. So please seek advice from that, report’s out there on our web site at globalglobal.com.

 



LEAVE A REPLY

Please enter your comment!
Please enter your name here