WEBINAR REPLAY: January 2023 Investor Name

Hey 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 speak robotics, automation, AI, healthcare applied sciences. We will 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 firms from around the globe.

We now have small, mid, giant 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 kind them into the Q&A field on the backside of your display. 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 resistant to that, and so they underperformed international equities for the yr 2022, however actually to not the identical extent as a few of the extra concentrated, disruptive know-how 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 exhibiting us by way of their report order consumption and their, in lots of instances, report 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 that could 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 fall. It outperformed international equities by a bit of greater than two share factors, with some fairly robust positive aspects 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 vital a part of the robotics trade.

And plenty of traders in public equities are simply not uncovered to this large development alternative. The truth is, since we launched the ROBO index in 2013, this has been one of the 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 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 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 isn’t solely in regards to the increase in e-commerce, but additionally, conventional retailers which can be constructing omnichannel operations which can be then feeding that vast transport and logistics trade, that’s dealing with a big label scarcity problem these days.

So there’s great development 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 in the present day don’t have any automation in any respect in additional than 90% of these warehouses. So, we have recognized one of the best in school firms which can be on the forefront of this development. And in the present day, now we have 10 ROBO index members which can be targeted on that, and so they account for about 14% of the portfolio. So you will see that firms like Daifuku in Japan, that’s the international chief in materials dealing with gear. You might have GXO, that’s utilized by a few of the largest blue chip firms to outsource their order achievement or logistics operations. You will have firms like Zebra, that’s the international chief in computerized identification and different monitor and hint applied sciences for provide chain. And Zebra was truly 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 firms like Manhattan Associates, that may 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 primarily based in Switzerland, that makes automated storage and retrieval methods. After which you have got Auto Retailer from Norway, which is a warehouse robotic know-how firm that invented the dice storage automation. That may be a very dense resolution for auto achievement, which you can principally convey into an current warehouse and automate it in a flip turnkey vogue. And so, Auto Retailer was one of the 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 development 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 a lot of you already know, 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 isn’t solely throughout the 11 sectors, but additionally throughout market cap. You might 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 really international portfolio. The truth is, 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 convey this up in the present day is as a result of ROBO has just about 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 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 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 firms, however actually, exporters into China. So now we have about 20% in Japan. Corporations like Fanook and Yaskawa in manufacturing facility robots, after which you have got an excellent variety of the know-how and market leaders in key elements that go into automated methods, like excessive precision gears from Harmonic Drive or Nabtesco. You might have linear movement management from THK, you have 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 predict they may profit from this yr.

Now earlier than I move it on to Lisa, I wish 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 robust, regardless of all of the speak of recession. And I am not saying it is not going to soften, but it surely’s outstanding how the basics have remained very robust. And on the similar 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 greatest in school robotics firms. They’ve remained on that basically good trying development trajectory. The truth is, 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 move it on to Lisa to debate healthcare know-how

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 trade in the present day. 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, growing 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 drugs was one of the 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 wish 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 know-how, taking a middle stage in drug discovery, and likewise enabling that life-saving prognosis for uncommon illnesses in most cancers. The index members within the area are actually reworking healthcare. The largest cause for the selloff was that many of those firms had been buying and selling at very excessive valuations as a result of robust development prospects, and traders 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 area.

Whereas we noticed steep selloff and perhaps a few of the valuation resets had been vital, we’re already beginning to see the genomic firms recovering from a few of the deep losses that we noticed previously yr. Corporations 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 take a look at. VeriCite makes use of AI enabled genomic know-how to hurry up medical prognosis so docs 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% prime line development from 30% development 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 could proceed to be risky, however they do have probably the most fascinating portfolios in most cancers monitoring, profiling, and diagnostics. They’re within the early phases constructing this platform and demonstrating the ability of genomics and epigenomics, which is an space that you’ll hear extra about within the coming quarters. Shares of backyard are already getting an excellent stability 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 focuses on most cancers diagnostics, have shared worth achieve of fifty% through the fourth quarter. And [inaudible 00:14:50] however one other 20% was an excellent indication that these firms had been in an oversold state of affairs. So whereas the businesses in our genomic sub-sector did expertise great volatility previously yr, 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 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 positive aspects through the quarter, pushed by hospital procedural restoration, and a really giant M and A deal for one in every of our index members. In November of final yr, we noticed one of many greatest ever acquisition within the med tech trade, with Johnson and Johnson buying a biomed, our HTEC index member that now we have held for the reason that 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 worth. The corporate developed the world’s smallest coronary heart pump, and had over 18 years of revenue development, and was effectively on its method in disrupting the 77 billion greenback cardiovascular trade when it was acquired.

Whereas medical instrument sub-sector gained about 12% through the quarter, it did negatively affect the attribution for the yr, resulting from heavy weighting of the index and ongoing provide chain disruptions that hit most 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 great 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 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 may be very effectively positioned to learn from a lot of the secular development drivers on the market. Thanks. And now I’ll flip to Zeno, who will talk about THNQ.

Thanks, Lisa. Now I will speak in regards to the ROBO World Synthetic Intelligence Index THNQ, which supplies publicity to firms around the globe main the AI revolution throughout infrastructure in each broad and vertical purposes which can be 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 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 right 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 under 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, client, 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. Huge 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 right down to 4.2X. An organization I wish 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% prime 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 positive aspects.

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, now we have 54% into infrastructure at the moment. And breaking that down, we have got large 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.

In the event 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 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 truly 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, outdoors of THNQ, firms which have greater publicity to client markets, PC and Cellular, which is seeing a slowdown resulting from 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 effectively 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 following decade, benefiting from the CHIPS Act passage. A pair different highlights embrace Amberella asserting 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 increase is predicted to generate further 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 firms 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 purposes, which incorporates sub-sectors, consulting companies, enterprise course of, e-commerce, healthcare, manufacturing facility automation, client, we noticed client and e-commerce as leaders right here with client up 13% and e-commerce up 6%. The flip aspect 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 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 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 feel everybody’s pondering proper now, what finish markets, enterprises, human conduct adjustments could possibly 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 know-how versus the general public dealing with tech akin to 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 area 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 might assist cut 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, keep in mind 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’ve got received different index members akin to Pure Storage, Arista networks. After which many different involvement software program improvement 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 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 fall, highlighted that virtually 50% of organizations that they surveyed have at the very least one enterprise unit using AI, with the best share being robotic course of automation.

And so they’re seeing very clear advantages on value 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 doubtlessly 100 billion plus trade over the following decade because it turns into extra built-in into completely different merchandise and elements of our lives. And I would like to focus on that whereas we’re seeing report layoffs, AI spend is predicted 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, value discount will drive aggressive financial demand. With that, I would wish to move 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 kind them into the Q and A field on the backside of your display. And I wish to remind everyone that on the finish of final yr, we printed our 2023 traits report by which most of the extra thrilling development tales round robotics, healthcare know-how and AI are defined intimately. So please seek advice from that, report’s out there on our web site at globalglobal.com.