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 International, 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’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 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, 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 believe for all of us in funding business, we’re glad to show the web page on the 12 months 2022, which actually was one for the historical past books by way of the hardships delivered to fairness and bond traders, however particularly to huge tech, the place we have seen a few of the most brutal declines after two years of euphoria. And the ROBO International Innovation indices weren’t resistant to that, they usually underperformed world equities for the 12 months 2022, however actually to not the identical extent as a few of 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 exhibiting us by way of their report order consumption and their, in lots of instances, report order backlogs.

So within the closing quarter of the 12 months, the ROBO International Innovation indices noticed fairly good positive factors, 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 fall. It outperformed world equities by a bit greater than two share factors, with some fairly robust positive factors in Europe, that was up 25%. And likewise in logistics automation, that was up some 20% or so. And I believe 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 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 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 world wide. And that race was began by Amazon, which is now operating one of many largest warehouse robotics operations on the earth. And that is actually enabling more and more brief supply instances from click on to order to supply. And all people else within the e-commerce business 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 are constructing omnichannel operations which are then feeding that massive transport and logistics business, that’s dealing with a major label scarcity problem these days.

So there’s great development in demand for logistics and warehouse automation, and it is vital to know that greater than 90% of the 20,000 or so warehouses within the US in the present day haven’t any automation in any respect in additional than 90% of these warehouses. So, we have recognized the most effective in school corporations which are on the forefront of this pattern. And in the present day, we have now 10 ROBO index members which are centered on that, they usually account for about 14% of the portfolio. So one can find corporations like Daifuku in Japan, that’s the world chief in materials dealing with tools. You will have GXO, that’s utilized by a few of the largest blue chip corporations to outsource their order achievement or logistics operations. You may have corporations like Zebra, that’s the world chief in automated identification and different monitor and hint applied sciences for provide chain. And Zebra was really an early investor in Fetch robotics that is made the headlines this 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 could 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 primarily based in Switzerland, that makes automated storage and retrieval methods. After which you might have Auto Retailer from Norway, which is a warehouse robotic expertise firm that invented the dice storage automation. That could be a very dense resolution for auto achievement, that you could principally carry into an present warehouse and automate it in a flip turnkey vogue. 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 take a look at a gross sales development that is effectively 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 , 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 isn’t solely throughout the 11 sectors, but additionally throughout market cap. You will 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 really world portfolio. In actual fact, you possibly can see round 40, 45% in US shares and about 55 to 60% in one other 12 completely different international locations. And the rationale I carry this up in the present day is as a result of ROBO has nearly 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 most important marketplace for robots in the present day.

And second, it is as a result of we’re seeing China reopening and enjoyable, 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 corporations, however actually, exporters into China. So we have now about 20% in Japan. Firms like Fanook and Yaskawa in manufacturing unit robots, after which you might have variety of the expertise and market leaders in key elements that go into automated methods, like excessive precision gears from Harmonic Drive or Nabtesco. You will have linear movement management from THK, you might have pneumatic elements 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 go 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 speak of recession. And I am not saying it won’t soften, nevertheless it’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 corporations. They’ve remained on that actually good trying development trajectory. In actual fact, we’re 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 predicted from the broader market, the S and P 500 or world equities. So with that, we’ll go it on to Lisa to debate healthcare expertise

Thanks, Jeremy. ROBO International Healthcare Know-how 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 in the present day. 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 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 knowledge analytics sub-sectors. Total, 2022 was a difficult 12 months for HTEC index members versus a worldwide 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 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 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 just a few of our index members that drove the efficiency. We strongly imagine 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 prognosis for uncommon ailments in most cancers. The index members within the house are actually reworking healthcare. The most important cause for the selloff was that many of those corporations had been buying and selling at very excessive valuations because of the 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. In actual fact, we’re seeing breakthroughs and acceleration investments from massive pharma to medical machine makers within the genomic house.

Whereas we noticed steep selloff and possibly a few of the valuation resets had been mandatory, we’re already beginning to see the genomic corporations recovering from a few of the deep losses that we noticed up 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 larger than anticipated gross sales at their most cancers diagnostic check. VeriCite makes use of AI enabled genomic expertise to hurry up medical prognosis so docs can present early therapy 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 only lower than 20% prime line development from 30% development from the prior 12 months. They’re rising to be an vital 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 one of the crucial fascinating 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 focuses on most cancers diagnostics, have shared value achieve of fifty% through the fourth quarter. And [inaudible 00:14:50] however one other 20% was indication that these corporations had been in an oversold scenario. So whereas the businesses in our genomic sub-sector did expertise great volatility up to now 12 months, 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 effectively 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 robust positive factors through the quarter, pushed by hospital procedural restoration, and a really massive M and A deal for one in every of our index members. In November of final 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 have now held because the 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 value. The corporate developed the world’s smallest coronary heart pump, and had over 18 years of revenue development, and was effectively on its approach in disrupting the 77 billion greenback cardiovascular business when it was acquired.

Whereas medical instrument sub-sector gained about 12% through the quarter, it did negatively influence the attribution for the 12 months, resulting from heavy weighting of the index and ongoing provide chain disruptions that hit most of the machine 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 great innovation accelerating and environments appears to point out indicators of enchancment as persons are getting extra checkups, and guide their appointments for his or her surgical procedures that they’ve held off through the pandemic. As we glance out into the 12 months, 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’ll speak in regards to the ROBO International Synthetic Intelligence Index THNQ, which supplies publicity to corporations world wide main the AI revolution throughout infrastructure in each broad and vertical purposes which are increasing GDP, creating new markets, and enhancing human situation. We launched the index in 2018, and the house has seen unimaginable development and progress since that point. It might 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 all the way 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 constructive territory, with semiconductor, client, 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 would like to focus on that Ford EV gross sales have dropped from a relative excessive of 13X all the way down to 4.2X. An organization I 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 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 factors.

We had 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 how we deploy and take a look at our index and allocation, we have now 54% into infrastructure at present. And breaking that down, we have huge knowledge analytics, semiconductor, community and safety, cognitive computing, and cloud suppliers. So I wish 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 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 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 overall, outdoors of THNQ, corporations which have larger publicity to client markets, PC and Cell, which is seeing a slowdown resulting from 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 effectively off at any type 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 subsequent decade, benefiting from the CHIPS Act passage. A pair different highlights embody Amberella saying a partnership with Continental for superior driverless methods and sensible 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 steerage by 2025. So, that is a fairly large improve of their anticipated demand from their prospects. Their prospects being corporations like Taiwan Semiconductor, Intel and Samsung and different huge 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, client, we noticed client and e-commerce as leaders right here with client 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 robust 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.

In the course of the fourth quarter, we noticed the introduction of the publicly accessible 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 adjustments could possibly be affected? And the way does that change the circulation of worth throughout society in organizations and governments? We count on Microsoft, for instance, to combine this tech throughout all merchandise, as they’ve unique entry to license the backend expertise versus the general public dealing with tech resembling Chat GPT, which is what is accessible for us to play with proper now. And so we count on this commercialization and subsequent downstream utilization to additional profit and speed up the house and adoption of AI. Core enterprise merchandise, web page and picture era, communication, and even healthcare may be affected right here. As a reminder, Microsoft acquired Nuance, which supplies conversational AI and instruments for healthcare resembling transcribing.

And we’re excited to see how that might assist scale back administrative burden within the healthcare house. And total, we’re excited to see what may 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 have obtained different index members resembling 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 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 least one enterprise unit using AI, with the very best share being robotic course of automation.

And so they’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 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 components 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 12 months. So we even imagine that, in a harsh atmosphere, this pattern will persist as the necessity for reliability, uptime, product modes, value discount will drive aggressive financial demand. With that, I would prefer to go it again to Jeremie, and yeah.

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 all people that on the finish of final 12 months, we printed our 2023 traits report by which most of the extra thrilling development tales round robotics, healthcare expertise and AI are defined intimately. So please confer with that, report’s accessible on our web site at globalglobal.com.