WEBINAR REPLAY: January 2023 Investor Name


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

Jeremie Capron:

Hiya 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 the moment, my colleagues, Lisa Chai and Zeno Mercer. And we’re going to speak robotics, automation, AI, healthcare applied sciences. We’ll share some ideas concerning 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 Expertise and Innovation Index. And these portfolios mix analysis with the advantages of index investing. They’re composed of best-in-class firms from all over the world.

We now have 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 at liberty to kind 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 traders, however particularly to huge tech, the place we have seen a number of the most brutal declines after two years of euphoria. And the ROBO World Innovation indices weren’t resistant to that, and so they underperformed international equities for the yr 2022, however actually to not the identical extent as a number of 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 firms are telling us and displaying us when it comes to their file order consumption and their, in lots of circumstances, file order backlogs.

So within the remaining quarter of the yr, the ROBO World Innovation indices noticed fairly good positive aspects, and a few inexperienced shoots which may be setting the stage for progress to return. So let’s begin with robotics and automation, and the ROBO index portfolio that was up 12% in This fall. It outperformed international equities by a bit greater than two proportion factors, with some fairly robust positive aspects in Europe, that was up 25%. And likewise in logistics automation, that was up some 20% or so. And I believe it is value discussing at the moment, logistics automation right here, as a result of that is an more and more vital a part of the robotics business.

And lots of traders in public equities are simply not uncovered to this large progress alternative. In actual fact, since we launched the ROBO index in 2013, this has been the perfect 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 planet. 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 principally scrambling to compete with this operational excellence. And it is not solely concerning the growth in e-commerce, but additionally, conventional retailers which can be constructing omnichannel operations which can be then feeding that massive transport and logistics business, that’s going through a big label scarcity subject these days.

So there’s super progress in demand for logistics and warehouse automation, and it is vital to grasp that greater than 90% of the 20,000 or so warehouses within the US at the moment don’t have any automation in any respect in additional than 90% of these warehouses. So, we have recognized the perfect at school firms which can be on the forefront of this development. And at the moment, we’ve 10 ROBO index members which can be targeted on that, and so they account for about 14% of the portfolio. So you can see firms like Daifuku in Japan, that’s the international chief in materials dealing with tools. You will have GXO, that’s utilized by a number of the largest blue chip firms to outsource their order success or logistics operations. You may have firms like Zebra, that’s the international 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 cell robots for warehouses and distribution facilities and manufacturing and so forth. You may discover firms 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’ve got Auto Retailer from Norway, which is a warehouse robotic expertise firm that invented the dice storage automation. That could be a very dense answer for auto success, which you can principally deliver into an current warehouse and automate it in a flip turnkey trend. And so, Auto Retailer was the perfect performing inventory within the ROBO index in This fall, it was up greater than 65%. That is coming after a really unstable 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 properly over 50% yr over yr, and enterprise that is already very worthwhile with EBITDA margins over 50%.

So, that is logistics. However as a lot of you understand, 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 actually, the ROBO portfolio may be very diversified. And it is not solely throughout the 11 sectors, but additionally throughout market cap. You will have about 40% in giant caps, however greater than 60% in small and mid-cap firms. And it is also diversified throughout areas, and that is a very international portfolio. In actual fact, you may see round 40, 45% in US shares and about 55 to 60% in one other 12 totally different international locations. And the explanation I deliver this up at the moment is as a result of ROBO has nearly excessive publicity to Asia, at round 30%. And that is vital 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 the moment.

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 in terms of the Asian piece of ROBO. And that’s not a lot Chinese language firms, however actually, exporters into China. So we’ve about 20% in Japan. Firms like Fanook and Yaskawa in manufacturing facility robots, after which you’ve got 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 will have linear movement management from THK, you’ve got pneumatic elements from SMC and so forth. And with the large transfer within the Japanese yen within the final 12 months, the Japanese exporters have gained a big aggressive benefit that we expect they’ll profit from this yr.

Now earlier than I move it on to Lisa, I wish to come again to my earlier remark concerning the discrepancy between inventory costs, and the fact 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 won’t soften, however it’s exceptional how the basics have remained very robust. And on the identical time, valuations have dramatically compressed. And so at the moment, 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 the moment, 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 firms. They’ve remained on that actually good wanting progress trajectory. In actual fact, we’re taking a look at 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 anticipated from the broader market, the S and P 500 or international equities. So with that, we’ll move it on to Lisa to debate healthcare expertise

 

Lisa Chai:

Thanks, Jeremy. ROBO World Healthcare Expertise 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 the moment. It has a really robust give attention to the subsequent 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, growing 6.9%. The efficiency was pushed by robotics, medical devices, and diagnostic sub-sectors, which all gained double digits. Whereas beneath efficiency in the course of the quarter have been in genomics and information analytics sub-sectors. General, 2022 was a difficult yr for HTEC index members versus a worldwide market indices. So we have been actually inspired by the robust efficiency in the course of 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 drugs was the perfect performing sub-sector, down nearly 10%, whereas the genomics and information analytics have been the worst performing sub-sectors. So with genomics declining over 60% 2022, we wish to share our ideas on the sub-sector and spotlight a couple 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 analysis for uncommon illnesses in most cancers. The index members within the house are actually reworking healthcare. The largest cause for the selloff was that many of those firms have been buying and selling at very excessive valuations because of the robust progress prospects, and traders have been ready for the corporate to simply develop into the analysis. General, we imagine the basics haven’t modified. In actual fact, we’re seeing breakthroughs and acceleration investments from giant pharma to medical gadget makers within the genomic house.

Whereas we noticed steep selloff and possibly a number of the valuation resets have been crucial, we’re already beginning to see the genomic firms recovering from a number of the deep losses that we noticed previously yr. Firms in genomics and precision drugs 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 greater than anticipated gross sales at their most cancers diagnostic check. VeriCite makes use of AI enabled genomic expertise to hurry up medical analysis 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 simply lower than 20% high line progress from 30% progress from the prior yr. They’re rising to be an vital participant within the liquid biopsy market within the areas of colorectal most cancers.

And the shared costs might proceed to be unstable, however they do have one of the vital fascinating portfolios in most cancers monitoring, profiling, and diagnostics. They’re within the early levels 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 stability for the yr. We predict many of those transformers of healthcare are actually oversold as traders 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 acquire of fifty% in the course of the fourth quarter. And [inaudible 00:14:50] however one other 20% was indication that these firms have been in an oversold scenario. So whereas the businesses in our genomic sub-sector did expertise super volatility previously yr, the extreme a number of compressions have additionally offered important 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 properly positioned for remainder of the yr. In the meantime, we’re additionally very excited concerning the medical instrument sub-sector, which holds the most important ready for HTEC at about 25%. It skilled robust positive aspects in the course of the quarter, pushed by hospital procedural restoration, and a really giant M and A deal for one in all 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 for the reason that creation of the technique. The biomed was acquired for 16.6 billion by J and G in the course of 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 properly on its means in disrupting the 77 billion greenback cardiovascular business when it was acquired.

Whereas medical instrument sub-sector gained about 12% in the course of the quarter, it did negatively influence the attribution for the yr, because of heavy weighting of the index and ongoing provide chain disruptions that hit lots of the gadget firms. 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 super innovation accelerating and environments appears to indicate indicators of enchancment as individuals are getting extra checkups, and ebook their appointments for his or her surgical procedures that they’ve held off in the course of the pandemic. As we glance out into the yr, we would 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 may be very properly 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’ll speak concerning the ROBO World Synthetic Intelligence Index THNQ, which supplies publicity to firms all over the world main the AI revolution throughout infrastructure in each broad and vertical purposes which can be increasing GDP, creating new markets, and enhancing human situation. We launched the index in 2018, and the house has seen unbelievable progress and progress since that point. It might 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% for the reason that 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 facility 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 firms like CrowdStrike down 36% on conservative steering cuts for 2023. Massive information and analytics was down 4.7%, and I would 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 wish to speak about shortly 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 elevate. We additionally noticed Mongo DB and Splunk decline, and these are all now at or under all their pandemic positive aspects.

We have 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 taking a look at how we deploy and take a look at our index and allocation, we’ve 54% into infrastructure at present. And breaking that down, we have got huge information analytics, semiconductor, community and safety, cognitive computing, and cloud suppliers. So I wish to briefly spotlight SEMI, which represents the biggest ready right here.

Should you have been right here for our final name, you may bear in mind me speaking about SEMI being useless, long-live semi. And at that cut-off date, SEMI had been the worst performing index of the yr, everybody was very nervous concerning 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 firms, particularly these tied to AI, which is all of our firms, cloud and automotive, outperforming the overall, exterior of THNQ, firms which have greater publicity to shopper markets, PC and Cell, which is seeing a slowdown because of over-saturation, inflation, et cetera.

So we noticed some firms with some nice efficiency, and a few of that is only a rebound, however they’re nonetheless buying and selling properly off at any type of excessive. So we had firms 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 subsequent 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 provide their flagship excessive ultraviolet machines.

And this anticipated increase is anticipated to generate extra six to 10 billion {dollars} in income from their steering by 2025. So, that is a reasonably large improve of their anticipated demand from their prospects. Their prospects being firms like Taiwan Semiconductor, Intel and Samsung and different huge foundries. Regardless of this information, ASML continues 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 facility 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 circumstances, with robust efficiency from Shopify, Netflix, reserving.com and jd.com. Now, I would like to modify again over to what I previewed earlier, which was generative AI.

Throughout the fourth quarter, we noticed the introduction of the publicly accessible 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 conduct adjustments might be affected? And the way does that change the move 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 going through tech akin to Chat GPT, which is what is offered 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 might be affected right here. As a reminder, Microsoft acquired Nuance, which supplies conversational AI and instruments for healthcare akin to transcribing.

And we’re excited to see how that would assist cut back administrative burden within the healthcare house. And general, we’re excited to see what might be constructed to enhance constructive human experiences right here. So shifting again to that Azure AI platform, which is what that is working on, keep in mind that, that itself makes use of many elements that comprise the AI stack, which many individuals do not understand or take into consideration. You see this on the floor, after which beneath is, consider an iceberg principle. So you’ve got received different index members akin to Pure Storage, Arista networks. After which many different involvement software program growth and developer operations which can be within the index, that present ongoing software program help and instruments to maintain this uptime. To verify it is working securely. So we anticipate improve of AI community and cybersecurity spend to return 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 virtually 50% of organizations that they surveyed have not less than one enterprise unit using AI, with the very best proportion being robotic course of automation.

They usually’re seeing very clear advantages on price discount and income improve. 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 probably 100 billion plus business over the subsequent decade because it turns into extra built-in into totally different merchandise and components of our lives. And I would like to spotlight that whereas we’re seeing file layoffs, AI spend is anticipated to speed up this yr. So we even imagine that, in a harsh setting, this development will persist as the necessity for reliability, uptime, product modes, price discount will drive aggressive financial demand. With that, I would 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 at liberty to kind them into the Q and A field on the backside of your display screen. And I wish to remind all people that on the finish of final yr, we printed our 2023 developments report during which lots of the extra thrilling progress tales round robotics, healthcare expertise and AI are defined intimately. So please consult with that, report’s accessible on our web site at globalglobal.com.

 



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