WEBINAR REPLAY: January 2023 Investor Name

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 at present, 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 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 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, massive 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 kind them into the Q&A field on the backside of your display. And I feel 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 a number 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 12 months 2022, however definitely to not the identical extent as a number of the extra concentrated, disruptive know-how 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 firms 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 12 months, the ROBO World Innovation indices noticed fairly good good points, and a few inexperienced shoots that could be setting the stage for progress to return. So let’s begin with robotics and automation, and the ROBO index portfolio that was up 12% in This fall. It outperformed international equities by somewhat greater than two proportion factors, with some fairly robust good points in Europe, that was up 25%. And in addition in logistics automation, that was up some 20% or so. And I feel it is price discussing at present, logistics automation right here, as a result of that is an more and more necessary a part of the robotics business.

And lots of traders in public equities are simply not uncovered to this large progress alternative. The truth is, 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 the tip 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 the planet. And that is actually enabling more and more brief supply occasions from click on to order to supply. And everyone else within the e-commerce business is mainly scrambling to compete with this operational excellence. And it is not solely in regards to the growth in e-commerce, but in addition, conventional retailers which are constructing omnichannel operations which are then feeding that vast transport and logistics business, that’s dealing with a big label scarcity difficulty these days.

So there’s large progress in demand for logistics and warehouse automation, and it is necessary to know that greater than 90% of the 20,000 or so warehouses within the US at present haven’t any automation in any respect in additional than 90% of these warehouses. So, we have recognized the most effective in school firms which are on the forefront of this pattern. And at present, we’ve 10 ROBO index members which are centered on that, they usually account for about 14% of the portfolio. So you can find firms like Daifuku in Japan, that’s the international chief in materials dealing with tools. You will have GXO, that’s utilized by a number of the largest blue chip firms to outsource their order success or logistics operations. You will have firms like Zebra, that’s the international chief in computerized identification and different observe and hint applied sciences for provide chain. And Zebra was truly 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 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 based mostly in Switzerland, that makes automated storage and retrieval methods. After which you’ve gotten Auto Retailer from Norway, which is a warehouse robotic know-how firm that invented the dice storage automation. That may be a very dense answer for auto success, which you could mainly carry into an current warehouse and automate it in a flip turnkey trend. And so, Auto Retailer was the most effective performing inventory within the ROBO index in This fall, 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 rather well. You have a look at a gross sales progress that is nicely 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 robust robotics purposes, from manufacturing to healthcare and enterprise course of and meals and agriculture. And in reality, the ROBO portfolio may be very diversified. And it is not solely throughout the 11 sectors, but in addition throughout market cap. You will have about 40% in massive 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 possibly can see round 40, 45% in US shares and about 55 to 60% in one other 12 completely different nations. And the explanation I carry this up at present is as a result of ROBO has just about 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 progress in demand over the long run. And China already is the biggest marketplace for robots at present.

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 in the case of the Asian piece of ROBO. And that’s not a lot Chinese language firms, however actually, exporters into China. So we’ve about 20% in Japan. Firms like Fanook and Yaskawa in manufacturing unit robots, after which you’ve gotten a great variety of the know-how and market leaders in key parts that go into automated methods, like excessive precision gears from Harmonic Drive or Nabtesco. You will have linear movement management from THK, you’ve gotten 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 12 months.

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 business the place demand stays very robust, regardless of all of the discuss of recession. And I am not saying it is not going to soften, nevertheless it’s outstanding how the basics have remained very robust. And on the identical time, valuations have dramatically compressed. And so at present, the ROBO index is buying and selling round 20 occasions earnings. That’s down from a excessive of greater than 35 occasions, in 2021 on the excessive. And at present, 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 firms. They’ve remained on that basically good wanting progress trajectory. The truth is, we’re taking a look at gross sales progress 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 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 method that we launched in 2019 that captures the expansion of the digital transformation that we’re seeing within the healthcare business at present. It has a really robust deal with the subsequent 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, rising 6.9%. The efficiency was pushed by robotics, medical devices, and diagnostic sub-sectors, which all gained double digits. Whereas beneath efficiency throughout the quarter have been in genomics and knowledge analytics sub-sectors. Total, 2022 was a difficult 12 months for HTEC index members versus a world market indices. So we have been actually inspired by the robust efficiency throughout the fourth quarter with six of the 9 sub-sectors posting constructive 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 medication 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 wish to share our ideas on the sub-sector and spotlight a couple of of our index members that drove the efficiency. We strongly imagine that we’re nonetheless on the early innings multi-year cycle of genomic know-how, taking a middle stage in drug discovery, and in addition enabling that life-saving prognosis for uncommon ailments in most cancers. The index members within the house are actually remodeling healthcare. The largest purpose for the selloff was that many of those firms have been buying and selling at very excessive valuations as a result of robust progress prospects, and traders have been ready for the corporate to simply develop into the analysis. Total, we imagine the basics haven’t modified. The truth is, we’re seeing breakthroughs and acceleration investments from massive pharma to medical gadget makers within the genomic house.

Whereas we noticed steep selloff and possibly a number of the valuation resets have been mandatory, we’re already beginning to see the genomic firms recovering from a number of the deep losses that we noticed prior to now 12 months. Firms 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 check. VeriCite makes use of AI enabled genomic know-how 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 12 months, as the expansion slowed to simply lower than 20% prime line progress from 30% progress from the prior 12 months. 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 probably the most attention-grabbing 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 great 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 worth achieve of fifty% throughout the fourth quarter. And [inaudible 00:14:50] however one other 20% was a great indication that these firms have been in an oversold scenario. So whereas the businesses in our genomic sub-sector did expertise large volatility prior to now 12 months, the extreme a number of compressions have additionally supplied 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 12 months. 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 good points throughout the quarter, pushed by hospital procedural restoration, and a really massive M and A deal for certainly one of our index members. In November of final 12 months, we noticed one of many largest ever acquisition within the med tech business, with Johnson and Johnson buying a biomed, our HTEC index member that we’ve held because the 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 progress, and was nicely on its means in disrupting the 77 billion greenback cardiovascular business when it was acquired.

Whereas medical instrument sub-sector gained about 12% throughout the quarter, it did negatively impression the attribution for the 12 months, because of 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 large innovation accelerating and environments appears to point out indicators of enchancment as individuals 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 12 months, we would really feel actually strongly that our index numbers with subsequent NextGen Healthcare Options will proceed to be in robust demand because the world goes again to the pre-pandemic ranges. And our HTEC may be very nicely positioned to profit from a lot of the secular progress 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 firms around the globe main the AI revolution throughout infrastructure in each broad and vertical purposes which are increasing GDP, creating new markets, and enhancing human situation. We launched the index in 2018, and the house has seen unimaginable progress and progress since that point. It could be remiss to not discuss 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 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 progress of 18.5%, which is under the long-term common of 23%. And on the flip aspect, we noticed EBITDA progress speed up to 32% progress.

So, breaking down the efficiency, we noticed eight out of the 11 sub-sectors within the constructive territory, with semiconductor, shopper, enterprise course of, manufacturing 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 firms like CrowdStrike down 36% on conservative steering cuts for 2023. Large knowledge 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 wish to discuss rapidly in that sub-sector, and massive 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 steering raised 14% for income and a 30% EPS elevate. We additionally noticed Mongo DB and Splunk decline, and these are all now at or under all their pandemic good points.

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 constructive 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 have a look at our index and allocation, we’ve 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 wish to briefly spotlight SEMI, which represents the biggest ready right here.

In case you have been right here for our final name, you may bear 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 12 months, everybody was very nervous in regards to the house, 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 shopper markets, PC and Cellular, which is seeing a slowdown because of over-saturation, inflation, et cetera.

So we noticed some firms with some nice efficiency, and a few of that is only a rebound, however they’re nonetheless buying and selling nicely off at any kind of excessive. So we had firms like Infineon up 38%, Amberella up 46%, ASML up 32%, and Nvidia up 20%. Piggybacking off that, we have seen over 200 million {dollars} in investments introduced in US semiconductor manufacturing capabilities anticipated of the subsequent decade, benefiting from the CHIPS Act passage. A pair different highlights embrace Amberella saying a partnership with Continental for superior driverless methods and good dashboards. ASML introduced plans to spice up CapEx to provide their flagship excessive ultraviolet machines.

And this anticipated enhance is predicted to generate extra six to 10 billion {dollars} in income from their steering by 2025. So, that is a reasonably large improve of their anticipated demand from their clients. Their clients 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 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 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 modifications 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 know-how versus the general public dealing with tech reminiscent of Chat GPT, which is what is on the market 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 house 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 reminiscent of transcribing.

And we’re excited to see how that would assist scale back administrative burden within the healthcare house. And total, 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 parts 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 concept. So you have bought different index members reminiscent of Pure Storage, Arista networks. After which many different involvement software program improvement and developer operations which are within the index, that present ongoing software program assist 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 fall, highlighted that virtually 50% of organizations that they surveyed have not less than one enterprise unit using AI, with the very best proportion being robotic course of automation.

They usually’re seeing very clear advantages on price discount and income improve. So there is a distinction between adoption and exploring, experimenting, after which driving enterprise. And proper now, we’re in between that exploring and experimenting stage. So we’re actually within the early innings right here by way of adoption and spend within the house. And we count on, for instance, generative AI to be probably 100 billion plus business over the subsequent 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 predicted to speed up this 12 months. So we even imagine that, in a harsh setting, this pattern will persist as the necessity for reliability, uptime, product modes, price 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 12 months, we printed our 2023 traits report through which most of the extra thrilling progress tales round robotics, healthcare know-how and AI are defined intimately. So please discuss with that, report’s out there on our web site at globalglobal.com.