WEBINAR REPLAY: January 2023 Investor Name

Howdy 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 concerning the latest market developments, after which we’ll take a better have a look at a few of our index portfolios. And the primary one is ROBO, R-O-B-O. That was the primary Robotics Automation Index. It began greater than 9 years in the past, in 2013. The second is THNQ, T-H-N-Q. That is the Synthetic Intelligence Index. The third one is HTEC, H-T-E-C. That is the Healthcare Know-how and Innovation Index. And these portfolios mix analysis with the advantages of index investing. They’re composed of best-in-class corporations from world wide.

We now have small, mid, giant caps that we analysis, and we rating on varied 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 sort them into the Q&A field on the backside of your display. 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 by way of the hardships delivered to fairness and bond traders, however particularly to massive 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 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 corporations are telling us and displaying us by way of their report order consumption and their, in lots of instances, report order backlogs.

So within the ultimate quarter of the yr, the ROBO World Innovation indices noticed fairly good good points, and a few inexperienced shoots that could 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 a bit greater than two proportion factors, with some fairly sturdy good points in Europe, that was up 25%. And in addition in logistics automation, that was up some 20% or so. And I believe it is price 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 lots 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 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 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 working one of many largest warehouse robotics operations on the earth. And that is actually enabling more and more quick supply instances from click on to order to supply. And everyone else within the e-commerce business is principally scrambling to compete with this operational excellence. And it isn’t solely concerning the increase in e-commerce, but in addition, conventional retailers which might be constructing omnichannel operations which might be then feeding that massive transport and logistics business, that’s going through a major label scarcity subject these days.

So there’s large development in demand for logistics and warehouse automation, and it is essential to know 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 perfect at school corporations which might be on the forefront of this development. And right this moment, we’ve 10 ROBO index members which might be targeted on that, and so they account for about 14% of the portfolio. So you will see corporations like Daifuku in Japan, that’s the international chief in materials dealing with tools. You may have GXO, that’s utilized by a number of the largest blue chip corporations to outsource their order achievement or logistics operations. You may have corporations 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 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 aspect. You may discover a firm like Cardex, that’s based mostly in Switzerland, that makes automated storage and retrieval methods. After which you’ve 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, you could principally deliver into an present warehouse and automate it in a flip turnkey style. And so, Auto Retailer was the perfect 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 have a look at a gross sales development that is nicely over 50% yr over yr, and enterprise that is already very worthwhile with EBITDA margins over 50%.

So, that is logistics. However as lots of you already know, 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 isn’t solely throughout the 11 sectors, but in addition throughout market cap. You may have about 40% in giant caps, however greater than 60% in small and mid-cap corporations. And it is also diversified throughout areas, and that is a really international portfolio. The truth is, you may see round 40, 45% in US shares and about 55 to 60% in one other 12 completely different international locations. And the rationale I deliver this up right this moment is as a result of ROBO has just about 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 most important 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 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 about 20% in Japan. Corporations like Fanook and Yaskawa in manufacturing facility robots, after which you’ve a very good 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 may have linear movement management from THK, you’ve 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 major aggressive benefit that we expect they’ll profit from this yr.

Now earlier than I cross it on to Lisa, I need 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 sturdy, regardless of all of the discuss of recession. And I am not saying it won’t soften, but it surely’s outstanding how the basics have remained very sturdy. And on the similar 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 greatest at school robotics corporations. 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 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 know-how

Thanks, Jeremy. ROBO World Healthcare Know-how Innovation Index HTEC is a method that we launched in 2019 that captures the expansion of the digital transformation that we’re seeing within the healthcare business right this moment. 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 beneath efficiency in the course of 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 in the course of the fourth quarter with six of the 9 sub-sectors posting optimistic 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 perfect performing sub-sector, down nearly 10%, whereas the genomics and information analytics had been the worst performing sub-sectors. So with genomics declining over 60% 2022, we need to share our ideas on the sub-sector and spotlight a number of of our index members that drove the efficiency. We strongly imagine that we’re nonetheless on the early innings multi-year cycle of genomic know-how, 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 remodeling healthcare. The most important motive 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 imagine the basics haven’t modified. The truth is, we’re seeing breakthroughs and acceleration investments from giant pharma to medical system makers within the genomic area.

Whereas we noticed steep selloff and possibly a number of the valuation resets had been mandatory, we’re already beginning to see the genomic corporations recovering from a number of the deep losses that we noticed prior to now yr. Corporations in genomics and precision medication sub-sectors, for instance, like VeriCite, Backyard Well being, and Exec Sciences, are beginning to present signal of restoration. For instance, index member VeriCite beat and raised the forecast throughout fourth quarter, pushed by larger than anticipated gross sales at their most cancers diagnostic take a look at. VeriCite makes use of AI enabled genomic know-how to hurry up medical analysis so docs can present early therapy for these at excessive danger 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 essential 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 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 a very good 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. Actual Sciences, one other index member, which makes a speciality of most cancers diagnostics, have shared worth acquire of fifty% in the course of the fourth quarter. And [inaudible 00:14:50] however one other 20% was a very good indication that these corporations had been in an oversold state of affairs. So whereas the businesses in our genomic sub-sector did expertise large volatility prior to now 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 nicely positioned for remainder of the yr. In the meantime, we’re additionally very excited concerning the medical instrument sub-sector, which holds the largest ready for HTEC at about 25%. It skilled sturdy good points in the course of the quarter, pushed by hospital procedural restoration, and a really giant M and A deal for certainly one of our index members. In November of final yr, 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’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 worth. The corporate developed the world’s smallest coronary heart pump, and had over 18 years of revenue development, and was nicely on its approach 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 impression the attribution for the yr, as a consequence of heavy weighting of the index and ongoing provide chain disruptions that hit most of the system 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 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 might 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 nicely 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 discuss concerning the ROBO World Synthetic Intelligence Index THNQ, which supplies publicity to corporations world wide main the AI revolution throughout infrastructure in each broad and vertical purposes which might be increasing GDP, creating new markets, and bettering human situation. We launched the index in 2018, and the area has seen unimaginable development and progress since that point. It might be remiss to not speak about 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 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 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 optimistic 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 corporations like CrowdStrike down 36% on conservative steering cuts for 2023. Huge 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 right down to 4.2X. An organization I need to speak about shortly 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 increase. We additionally noticed Mongo DB and Splunk decline, and these are all now at or beneath all their pandemic good points.

We had been optimistic going into 2023 that that is the yr of AI primetime for adoption and deployment. From a monetary perspective, out of our 68 holdings, 90% are projected to have optimistic 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 have a look at our index and allocation, we’ve 54% into infrastructure presently. And breaking that down, we have got massive information analytics, semiconductor, community and safety, cognitive computing, and cloud suppliers. So I need to briefly spotlight SEMI, which represents the most important ready right here.

In case you had been right here for our final name, you may keep in mind me speaking about SEMI being lifeless, long-live semi. And at that time limit, SEMI had been the worst performing index of the yr, everybody was very nervous concerning 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 corporations, particularly these tied to AI, which is all of our corporations, cloud and automotive, outperforming the final, exterior of THNQ, corporations which have larger publicity to shopper markets, PC and Cell, which is seeing a slowdown as a consequence of over-saturation, inflation, et cetera.

So we noticed some corporations with some nice efficiency, and a few of that is only a rebound, however they’re nonetheless buying and selling nicely 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 saying 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 increase is anticipated to generate further six to 10 billion {dollars} in income from their steering by 2025. So, that is a fairly large improve of their anticipated demand from their clients. Their clients being corporations like Taiwan Semiconductor, Intel and Samsung and different massive foundries. Regardless of this information, ASML remains to be buying and selling 25% off earlier highs. Now switching over to the purposes, which incorporates sub-sectors, consulting providers, enterprise course of, e-commerce, healthcare, manufacturing facility 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 greatest laggers alongside semiconductor up till Q3. So we’re seeing an indication of resurgence and reversal of oversold circumstances, 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.

Throughout 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 believe everybody’s pondering proper now, what finish markets, enterprises, human habits modifications could possibly be affected? And the way does that change the circulate 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 know-how versus the general public going through tech comparable to Chat GPT, which is what is offered 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 supplies conversational AI and instruments for healthcare comparable 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 might be constructed to enhance optimistic human experiences right here. So shifting again to that Azure AI platform, which is what that is working on, do not forget that, that itself makes use of many elements that comprise the AI stack, which many individuals do not understand or take into consideration. You see this on the floor, after which beneath is, consider an iceberg idea. So you’ve got received different index members comparable to Pure Storage, Arista networks. After which many different involvement software program improvement and developer operations which might be within the index, that present ongoing software program help and instruments to maintain this uptime. To ensure it is working securely. So we count on 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 autumn, highlighted that almost 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 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 business 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 spotlight that whereas we’re seeing report 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, value discount will drive aggressive financial demand. With that, I would prefer 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. And I need to remind everyone that on the finish of final yr, we revealed our 2023 tendencies report wherein 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 obtainable on our web site at globalglobal.com.