WEBINAR REPLAY: January 2023 Investor Name

Hiya 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 right this moment, my colleagues, Lisa Chai and Zeno Mercer. And we’re going to discuss robotics, automation, AI, healthcare applied sciences. We’ll share some ideas in regards to the current market developments, after which we’ll take a better 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 around the globe.

Now we have 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 at liberty 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 12 months 2022, which definitely 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 among the most brutal declines after two years of euphoria. And the ROBO World Innovation indices weren’t proof against that, and so they underperformed international equities for the 12 months 2022, however definitely to not the identical extent as among the extra concentrated, disruptive expertise indices on the market. Inside this new 12 months, 2023 is a 12 months 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 by way of their file order consumption and their, in lots of circumstances, file order backlogs.

So within the ultimate quarter of the 12 months, the ROBO World Innovation indices noticed fairly good positive aspects, and a few inexperienced shoots which may be setting the stage for development to come back. 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 a bit greater than two share factors, with some fairly sturdy positive aspects in Europe, that was up 25%. And in addition in logistics automation, that was up some 20% or so. And I believe it is value discussing right this moment, logistics automation right here, as a result of that is an more and more essential a part of the robotics business.

And plenty of traders in public equities are simply not uncovered to this large development alternative. In actual fact, since we launched the ROBO index in 2013, this has been the most effective performing of the 11 sub-sectors that composed the portfolio. We noticed a complete return of greater than 300%, 340% by means of the top of 2022. And that is after the substantial decline final 12 months, 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 around the globe. 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 brief supply instances from click on to order to supply. And everyone else within the e-commerce business is principally 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 are constructing omnichannel operations which are then feeding that massive transport and logistics business, that’s dealing with a major label scarcity situation these days.

So there’s large development in demand for logistics and warehouse automation, and it is essential to grasp that greater than 90% of the 20,000 or so warehouses within the US right this moment don’t have any automation in any respect in additional than 90% of these warehouses. So, we have recognized the most effective at school corporations which are on the forefront of this pattern. And right this moment, we now have 10 ROBO index members which are targeted on that, and so they account for about 14% of the portfolio. So one can find corporations like Daifuku in Japan, that’s the international chief in materials dealing with gear. You could have GXO, that’s utilized by among the largest blue chip corporations to outsource their order success or logistics operations. You may have corporations like Zebra, that’s the international chief in automated identification and different observe and hint applied sciences for provide chain. And Zebra was really an early investor in Fetch robotics that is made the headlines this 12 months.

Fetch robotics makes autonomous cell robots for warehouses and distribution facilities and manufacturing and so forth. You may discover corporations like Manhattan Associates, that may 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 may be a very dense resolution for auto success, you could principally carry into an present warehouse and automate it in a flip turnkey style. And so, Auto Retailer was the most effective performing inventory within the ROBO index in This autumn, it was up greater than 65%. That is coming after a really risky 12 months 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% 12 months over 12 months, and enterprise that is already very worthwhile with EBITDA margins over 50%.

So, that is logistics. However as lots of you understand, the ROBO portfolio is uncovered to many different very sturdy robotics functions, from manufacturing to healthcare and enterprise course of and meals and agriculture. And actually, the ROBO portfolio could be very diversified. And it isn’t solely throughout the 11 sectors, but in addition throughout market cap. You could have 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 very international portfolio. In actual fact, you’ll be able to see round 40, 45% in US shares and about 55 to 60% in one other 12 completely different nations. And the rationale I carry this up right this moment is as a result of ROBO has nearly excessive publicity to Asia, at round 30%. And that is essential 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 right this moment.

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 were in place and actually holding again investments within the final two years. So with China reopening, we’re fairly optimistic relating to the Asian piece of ROBO. And that’s not a lot Chinese language corporations, however actually, exporters into China. So we now have about 20% in Japan. Firms like Fanook and Yaskawa in manufacturing unit robots, after which you’ve got variety of the expertise and market leaders in key parts that go into automated methods, like excessive precision gears from Harmonic Drive or Nabtesco. You could have linear movement management from THK, you’ve got pneumatic parts 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 are going to profit from this 12 months.

Now earlier than I cross 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 business the place demand stays very sturdy, regardless of all of the discuss of recession. And I am not saying it won’t soften, however it’s exceptional how the basics have remained very sturdy. And on the identical time, valuations have dramatically compressed. And so right this 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 right this 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 corporations. They’ve remained on that basically good wanting development trajectory. In actual fact, we’re taking a look at gross sales development of 11% in 2022. And the expectations for this 12 months, 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 cross it on to Lisa to debate healthcare expertise

Thanks, Jeremy. ROBO World Healthcare Expertise Innovation Index HTEC is a technique that we launched in 2019 that captures the expansion of the digital transformation that we’re seeing within the healthcare business right this moment. It has a really sturdy deal with 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 strong 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 in the course of the quarter have been in genomics and knowledge analytics sub-sectors. General, 2022 was a difficult 12 months for HTEC index members versus a world market indices. So we have been actually inspired by the sturdy efficiency in the course of the fourth quarter with six of the 9 sub-sectors posting optimistic returns. HTEC index for the 12 months declined roughly 33% in comparison with broader market within the sea of 18% decline.

For the 12 months, precision drugs was the most effective performing sub-sector, down nearly 10%, whereas the genomics and knowledge analytics have 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 couple of 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 likewise enabling that life-saving analysis for uncommon ailments in most cancers. The index members within the area are actually reworking healthcare. The most important cause for the selloff was that many of those corporations have been buying and selling at very excessive valuations because of the sturdy development prospects, and traders have been ready for the corporate to only develop into the analysis. General, we consider the basics haven’t modified. In actual fact, we’re seeing breakthroughs and acceleration investments from massive pharma to medical gadget makers within the genomic area.

Whereas we noticed steep selloff and possibly among the valuation resets have been obligatory, we’re already beginning to see the genomic corporations recovering from among the deep losses that we noticed up to now 12 months. 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 docs can present early remedy for these at excessive danger for thyroid and prostate most cancers. In the meantime, Backyard Well being declined over 70% final 12 months, as the expansion slowed to only lower than 20% prime line development from 30% development from the prior 12 months. They’re rising to be an essential 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 some of the attention-grabbing 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 will hear extra about within the coming quarters. Shares of backyard are already getting stability for the 12 months. We expect many of those transformers of healthcare are actually oversold as traders de-risk their portfolios within the final 12 months. Actual 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 corporations have been in an oversold state of affairs. So whereas the businesses in our genomic sub-sector did expertise large volatility up to now 12 months, the extreme a number of compressions have additionally supplied 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 12 months. In the meantime, we’re additionally very excited in regards to the medical instrument sub-sector, which holds the most important ready for HTEC at about 25%. It skilled sturdy positive aspects in the course of the quarter, pushed by hospital procedural restoration, and a really massive M and A deal for one in all our index members. In November of final 12 months, we noticed one of many greatest ever acquisition within the med tech business, with Johnson and Johnson buying a biomed, our HTEC index member that we now have held because the 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 development, 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 affect the attribution for the 12 months, as a result of heavy weighting of the index and ongoing provide chain disruptions that hit most 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 large innovation accelerating and environments appears to indicate indicators of enchancment as individuals are getting extra checkups, and e book 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 12 months, 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 learn from a lot of the secular development drivers on the market. Thanks. And now I’ll flip to Zeno, who will focus on THNQ.

Thanks, Lisa. Now I’ll discuss in regards to the ROBO World Synthetic Intelligence Index THNQ, which supplies publicity to corporations around the globe main the AI revolution throughout infrastructure in each broad and vertical functions 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 will be remiss to not speak about generative AI and chat GPT, however first, we’ll cowl some This autumn highlights and efficiency. The index row is 4.4%, with a continued fall in valuation right down to round 4.7 EV gross sales on the 12 months 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 development of 18.5%, which is under the long-term common of 23%. And on the flip facet, 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 optimistic 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 steerage cuts for 2023. Huge knowledge and analytics was down 4.7%, and I might like to focus on that Ford EV gross sales have dropped from a relative excessive of 13X right down to 4.2X. An organization I need to speak about shortly in that sub-sector, and large knowledge 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% prime line beat and steerage 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 12 months of AI primetime for adoption and deployment. From a monetary perspective, out of our 68 holdings, 90% are projected to have optimistic EPS this 12 months, 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 now have 54% into infrastructure presently. And breaking that down, we have got large knowledge analytics, semiconductor, community and safety, cognitive computing, and cloud suppliers. So I need to briefly spotlight SEMI, which represents the biggest ready right here.

For those who 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 time limit, SEMI had been the worst performing index of the 12 months, 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, exterior of THNQ, corporations which have greater publicity to shopper markets, PC and Cell, which is seeing a slowdown as a result 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 properly off at any kind 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 embody Amberella asserting a partnership with Continental for superior driverless methods and good dashboards. ASML introduced plans to spice up CapEx to provide their flagship excessive ultraviolet machines.

And this anticipated enhance is anticipated to generate extra six to 10 billion {dollars} in income from their steerage 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 large foundries. Regardless of this information, ASML remains to be buying and selling 25% off earlier highs. Now switching over to the functions, 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 greatest 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 might like to change again over to what I previewed earlier, which was generative AI.

Throughout 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 conduct modifications may very well be affected? And the way does that change the circulate 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 similar 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 area and adoption of AI. Core enterprise merchandise, web page and picture era, communication, and even healthcare could be affected right here. As a reminder, Microsoft acquired Nuance, which supplies conversational AI and instruments for healthcare similar to transcribing.

And we’re excited to see how that would assist scale back administrative burden within the healthcare area. And general, we’re excited to see what could be constructed to enhance optimistic 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 principle. So you’ve got acquired different index members similar to 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 ensure it is operating securely. So we anticipate enhance of AI community and cybersecurity spend to come back 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 virtually 50% of organizations that they surveyed have at the least one enterprise unit using AI, with the 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 by way of adoption and spend within the area. And we anticipate, for instance, generative AI to be probably 100 billion plus business over the following decade because it turns into extra built-in into completely different merchandise and elements of our lives. And I might like to focus on that whereas we’re seeing file layoffs, AI spend is anticipated to speed up this 12 months. So we even consider 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 wish to cross it again to Jeremie, and yeah.

Okay, thanks Zeno and Lisa, and now we’re going to take your questions. So be at liberty 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 12 months, we printed our 2023 traits report through which most of the extra thrilling development 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.