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HomeRoboticsWEBINAR REPLAY: January 2023 Investor Name

WEBINAR REPLAY: January 2023 Investor Name


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

Jeremie Capron:

Good day everybody. Welcome to our January 2023 investor name. My identify 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 in the present day, my colleagues, Lisa Chai and Zeno Mercer. And we’re going to discuss robotics, automation, AI, healthcare applied sciences. We will share some ideas in regards to the current 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 corporations from world wide.

We have now small, mid, massive caps that we analysis, and we rating on numerous metrics. And the 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 feel for all of us in funding trade, we’re glad to show the web page on the yr 2022, which actually was one for the historical past books by way of the hardships delivered to fairness and bond traders, however particularly to large tech, the place we have seen a few of the most brutal declines after two years of euphoria. And the ROBO World Innovation indices weren’t proof against that, they usually underperformed international equities for the yr 2022, however actually to not the identical extent as a few 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 corporations are telling us and exhibiting us by way of their document order consumption and their, in lots of instances, document order backlogs.

So within the remaining quarter of the yr, the ROBO World Innovation indices noticed fairly good positive factors, and a few inexperienced shoots which may be setting the stage for development to return. So let’s begin with robotics and automation, and the ROBO index portfolio that was up 12% in This autumn. It outperformed international equities by slightly greater than two proportion factors, with some fairly sturdy positive factors in Europe, that was up 25%. And in addition in logistics automation, that was up some 20% or so. And I feel it is value discussing in the present day, logistics automation right here, as a result of that is an more and more necessary a part of the robotics trade.

And lots of traders in public equities are simply not uncovered to this huge development alternative. In truth, 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 the top 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 world wide. And that race was began by Amazon, which is now operating one of many largest warehouse robotics operations on this planet. And that is actually enabling more and more quick supply instances from click on to order to supply. And everyone else within the e-commerce trade is principally scrambling to compete with this operational excellence. And it is not solely in regards to the increase in e-commerce, but additionally, conventional retailers which are constructing omnichannel operations which are then feeding that massive transport and logistics trade, that’s dealing with a big label scarcity situation these days.

So there’s large development in demand for logistics and warehouse automation, and it is necessary to grasp that greater than 90% of the 20,000 or so warehouses within the US in the present day don’t have any automation in any respect in additional than 90% of these warehouses. So, we have recognized the very best in school corporations which are on the forefront of this development. And in the present day, we’ve got 10 ROBO index members which are centered on that, they usually account for about 14% of the portfolio. So you’ll discover corporations like Daifuku in Japan, that’s the international chief in materials dealing with gear. You’ve got GXO, that’s utilized by a few of the largest blue chip corporations to outsource their order achievement or logistics operations. You will have corporations 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 cellular robots for warehouses and distribution facilities and manufacturing and so forth. You will discover corporations like Manhattan Associates, that could be a chief within the warehouse administration system, so that’s on the software program aspect. You will discover a firm like Cardex, that’s based mostly in Switzerland, that makes automated storage and retrieval programs. After which you will 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, that you could principally convey into an present warehouse and automate it in a flip turnkey style. And so, Auto Retailer was the very best performing inventory within the ROBO index in This autumn, 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 very well. You take a look at a gross sales development 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 , the ROBO portfolio is uncovered to many different very sturdy 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 is not solely throughout the 11 sectors, but additionally throughout market cap. You’ve got about 40% in massive caps, however greater than 60% in small and mid-cap corporations. And it is also diversified throughout areas, and that is a really international portfolio. In truth, you possibly can see round 40, 45% in US shares and about 55 to 60% in one other 12 totally different international locations. And the explanation I convey this up in the present day 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 development in demand over the long run. And China already is the biggest marketplace for robots in the present day.

And second, it is as a result of we’re seeing China reopening and stress-free, the overwhelming majority of the COVID associated constraints which have been 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 isn’t a lot Chinese language corporations, however actually, exporters into China. So we’ve got about 20% in Japan. Corporations like Fanook and Yaskawa in manufacturing unit robots, after which you will have a superb variety of the expertise and market leaders in key parts that go into automated programs, like excessive precision gears from Harmonic Drive or Nabtesco. You’ve got linear movement management from THK, you will have pneumatic parts 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 predict they may profit from this yr.

Now earlier than I go it on to Lisa, I need to come again to my earlier remark in regards to the discrepancy between inventory costs, and the fact on the bottom within the automation trade the place demand stays very sturdy, regardless of all of the discuss of recession. And I am not saying it is not going to soften, however it’s outstanding how the basics have remained very sturdy. And on the identical time, valuations have dramatically compressed. And so in the present day, 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 in the present day, we’re on the low cost to the long-term common valuation. And within the meantime, we see the earnings of these finest in school robotics corporations. They’ve remained on that basically good wanting development trajectory. In truth, we’re taking a look at gross sales development 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 international equities. So with that, we’ll go 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 trade in the present day. It has a really sturdy give attention to the following era 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 below efficiency throughout the quarter had been in genomics and information analytics sub-sectors. General, 2022 was a difficult yr for HTEC index members versus a world market indices. So we had been actually inspired by the sturdy efficiency throughout 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 just a few of our index members that drove the efficiency. We strongly consider that we’re nonetheless on the early innings multi-year cycle of genomic expertise, taking a middle stage in drug discovery, and in addition enabling that life-saving prognosis for uncommon illnesses in most cancers. The index members within the area are actually remodeling healthcare. The most important purpose for the selloff was that many of those corporations had been buying and selling at very excessive valuations as a result of sturdy development prospects, and traders had been ready for the corporate to only develop into the analysis. General, we consider the basics haven’t modified. In truth, we’re seeing breakthroughs and acceleration investments from massive pharma to medical system makers within the genomic area.

Whereas we noticed steep selloff and possibly a few of the valuation resets had been obligatory, we’re already beginning to see the genomic corporations recovering from a few of the deep losses that we noticed up 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 greater than anticipated gross sales at their most cancers diagnostic take a look at. 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 development from 30% development 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 might proceed to be risky, however they do have some of the fascinating portfolios in most cancers monitoring, profiling, and diagnostics. They’re within the early levels constructing this platform and demonstrating the ability of genomics and epigenomics, which is an space that you will hear extra about within the coming quarters. Shares of backyard are already getting a superb steadiness for the yr. We expect many of those transformers of healthcare are actually oversold as traders de-risk their portfolios within the final yr. Actual Sciences, one other index member, which makes a speciality of most cancers diagnostics, have shared worth acquire of fifty% throughout the fourth quarter. And [inaudible 00:14:50] however one other 20% was a superb indication that these corporations had been in an oversold scenario. So whereas the businesses in our genomic sub-sector did expertise large volatility up 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 consider that our index members are very properly 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 sturdy positive factors throughout the quarter, pushed by hospital procedural restoration, and a really massive M and A deal for one in every of our index members. In November of final yr, we noticed one of many largest ever acquisition within the med tech trade, with Johnson and Johnson buying a biomed, our HTEC index member that we’ve got held for the reason that creation of the technique. The biomed was acquired for 16.6 billion by J and G throughout the quarter, a 50% upside from the closing worth. The corporate developed the world’s smallest coronary heart pump, and had over 18 years of revenue development, and was properly on its method in disrupting the 77 billion greenback cardiovascular trade when it was acquired.

Whereas medical instrument sub-sector gained about 12% throughout the quarter, it did negatively impression the attribution for the yr, attributable to heavy weighting of the index and ongoing provide chain disruptions that hit lots of the system corporations. Long term, 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 large innovation accelerating and environments appears to point out indicators of enchancment as persons are getting extra checkups, and ebook their appointments for his or her surgical procedures that they’ve held off throughout 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 sturdy demand because the world goes again to the pre-pandemic ranges. And our HTEC could be very properly positioned to profit from a lot of the secular development drivers on the market. Thanks. And now I’ll flip to Zeno, who will talk about THNQ.

 

Zeno Mercer:

Thanks, Lisa. Now I’ll discuss in regards to the ROBO World Synthetic Intelligence Index THNQ, which offers publicity to corporations world wide main the AI revolution throughout infrastructure in each broad and vertical purposes which are increasing GDP, creating new markets, and bettering human situation. We launched the index in 2018, and the area has seen unbelievable development and progress since that point. It might be remiss to not discuss generative AI and chat GPT, however first, we are going to cowl some This autumn 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 development of 18.5%, which is beneath the long-term common of 23%. And on the flip aspect, we noticed EBITDA development speed up to 32% development.

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. Large information and analytics was down 4.7%, and I would like to focus on 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 discuss rapidly in that sub-sector, and large 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 beneath all their pandemic positive factors.

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 taking a look at how we deploy and take a look at our index and allocation, we’ve got 54% into infrastructure at present. And breaking that down, we have large 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.

When you had been right here for our final name, you would possibly keep in mind me speaking about SEMI being lifeless, long-live semi. And at that cut-off date, SEMI had been the worst performing index of the yr, everybody was very nervous in regards to the area, 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, outdoors of THNQ, corporations which have greater publicity to shopper markets, PC and Cell, which is seeing a slowdown attributable to 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 properly 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 programs and good dashboards. ASML introduced plans to spice up CapEx to provide their flagship excessive ultraviolet machines.

And this anticipated increase is predicted to generate extra six to 10 billion {dollars} in income from their steering by 2025. So, that is a reasonably huge improve of their anticipated demand from their prospects. Their prospects being corporations like Taiwan Semiconductor, Intel and Samsung and different large 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 unit automation, shopper, we noticed shopper and e-commerce as leaders right here with shopper up 13% and e-commerce up 6%. The flip aspect 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 sturdy efficiency from Shopify, Netflix, reserving.com and jd.com. Now, I would like to change again over to what I previewed earlier, which was generative AI.

Through the fourth quarter, we noticed the introduction of the publicly obtainable Chat GPT, which is from Open AI, which is partnered with and runs on index member, Microsoft’s Azure AI platform. So I feel everybody’s considering proper now, what finish markets, enterprises, human habits adjustments might be affected? And the way does that change the movement of worth throughout society in organizations and governments? We count on 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 accessible for us to play with proper now. And so we count on this commercialization and subsequent downstream utilization to additional profit and speed up the area and adoption of AI. Core enterprise merchandise, web page and picture era, communication, and even healthcare might 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 scale back administrative burden within the healthcare area. 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 operating on, do not forget that, that itself makes use of many parts 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 concept. So you have obtained different index members resembling Pure Storage, Arista networks. After which many different involvement software program growth and developer operations which are within the index, that present ongoing software program help and instruments to maintain this uptime. To verify it is operating securely. So we count on improve of AI community and cybersecurity spend to return from elevated utilization right here. A current McKinsey report that got here out on the state of AI on this final This autumn, highlighted that almost 50% of organizations that they surveyed have a minimum of one enterprise unit using AI, with the best proportion being robotic course of automation.

They usually’re seeing very clear advantages on value 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 by way of adoption and spend within the area. And we count on, for instance, generative AI to be probably 100 billion plus trade over the following decade because it turns into extra built-in into totally different merchandise and components of our lives. And I would like to focus on that whereas we’re seeing document layoffs, AI spend is predicted to speed up this yr. So we even consider that, in a harsh surroundings, this development will persist as the necessity for reliability, uptime, product modes, value discount will drive aggressive financial demand. With that, I would prefer to go 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 everyone that on the finish of final yr, we revealed our 2023 developments report during which lots of the extra thrilling development tales round robotics, healthcare expertise and AI are defined intimately. So please discuss with that, report’s obtainable on our web site at globalglobal.com.

 



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