WEBINAR REPLAY: January 2023 Investor Name

Good day everybody. Welcome to our January 2023 investor name. My title 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 immediately, my colleagues, Lisa Chai and Zeno Mercer. And we’re going to speak robotics, automation, AI, healthcare applied sciences. We’ll share some ideas concerning the current market developments, after which we’ll take a more in-depth 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 world wide.

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 sort them into the Q&A field on the backside of your display screen. And I believe for all of us in funding trade, we’re glad to show the web page on the 12 months 2022, which definitely was one for the historical past books when it comes to the hardships delivered to fairness and bond traders, however particularly to huge tech, the place we have seen among the most brutal declines after two years of euphoria. And the ROBO International Innovation indices weren’t proof against that, and so they underperformed international equities for the 12 months 2022, however definitely to not the identical extent as among the extra concentrated, disruptive 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 exhibiting us when it comes to their document order consumption and their, in lots of instances, document order backlogs.

So within the remaining quarter of the 12 months, the ROBO International Innovation indices noticed fairly good beneficial properties, 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 fall. It outperformed international equities by a bit greater than two proportion factors, with some fairly sturdy beneficial properties in Europe, that was up 25%. And likewise in logistics automation, that was up some 20% or so. And I believe it is price discussing immediately, logistics automation right here, as a result of that is an more and more essential a part of the robotics trade.

And plenty of traders in public equities are simply not uncovered to this huge development alternative. In actual fact, 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 way 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 working one of many largest warehouse robotics operations on the earth. And that is actually enabling more and more brief supply occasions from click on to order to supply. And all people else within the e-commerce trade is mainly scrambling to compete with this operational excellence. And it is not solely concerning the growth in e-commerce, but additionally, conventional retailers which are constructing omnichannel operations which are 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 essential to know that greater than 90% of the 20,000 or so warehouses within the US immediately 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 are on the forefront of this pattern. And immediately, now we have 10 ROBO index members which are targeted on that, and so they account for about 14% of the portfolio. So you will see firms like Daifuku in Japan, that’s the international chief in materials dealing with tools. You have got GXO, that’s utilized by among 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 observe and hint applied sciences for provide chain. And Zebra was really an early investor in Fetch robotics that is made the headlines this 12 months.

Fetch robotics makes autonomous 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 facet. You will discover a firm like Cardex, that’s based mostly in Switzerland, that makes automated storage and retrieval programs. After which you’ve gotten Auto Retailer from Norway, which is a warehouse robotic know-how firm that invented the dice storage automation. That could be a very dense answer for auto achievement, that you would be able to mainly convey into an current warehouse and automate it in a flip turnkey trend. 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 12 months 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 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 you recognize, the ROBO portfolio is uncovered to many different very sturdy robotics functions, from manufacturing to healthcare and enterprise course of and meals and agriculture. And in reality, the ROBO portfolio could be very diversified. And it is not solely throughout the 11 sectors, but additionally throughout market cap. You have got 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 very international portfolio. In actual fact, you’ll be able to see round 40, 45% in US shares and about 55 to 60% in one other 12 totally different international locations. And the explanation I convey this up immediately 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 immediately.

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 terms of 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. Firms like Fanook and Yaskawa in manufacturing unit robots, after which you’ve gotten a superb variety of the know-how and market leaders in key parts that go into automated programs, like excessive precision gears from Harmonic Drive or Nabtesco. You have got 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 are going to profit from this 12 months.

Now earlier than I cross it on to Lisa, I need to come again to my earlier remark concerning the discrepancy between inventory costs, and the truth on the bottom within the automation trade the place demand stays very sturdy, 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 sturdy. And on the similar time, valuations have dramatically compressed. And so immediately, 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 immediately, 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 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 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 International 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 immediately. It has a really sturdy 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 beneath efficiency throughout the quarter had been in genomics and knowledge analytics sub-sectors. General, 2022 was a difficult 12 months for HTEC index members versus a world market indices. So we had been actually inspired by the sturdy 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 drugs was one of the best 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 need 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 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 really remodeling healthcare. The largest purpose for the selloff was that many of those firms had been buying and selling at very excessive valuations because of the sturdy development prospects, and traders had been ready for the corporate to simply develop into the analysis. General, we imagine the basics haven’t modified. In actual fact, we’re seeing breakthroughs and acceleration investments from giant pharma to medical machine makers within the genomic area.

Whereas we noticed steep selloff and perhaps among the valuation resets had been essential, we’re already beginning to see the genomic firms recovering from among the deep losses that we noticed previously 12 months. Firms in genomics and precision drugs sub-sectors, for instance, like VeriCite, Backyard Well being, and Exec Sciences, are beginning to present signal of restoration. For instance, index member VeriCite beat and raised the forecast throughout fourth quarter, pushed by increased than anticipated gross sales at their most cancers diagnostic check. VeriCite makes use of AI enabled genomic know-how to hurry up medical analysis 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 development from 30% development from the prior 12 months. They’re rising to be an essential participant within the liquid biopsy market within the areas of colorectal most cancers.

And the shared costs might proceed to be risky, however they do have one of the attention-grabbing portfolios in most cancers monitoring, profiling, and diagnostics. They’re within the early phases 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 superb steadiness for the 12 months. We predict many of those transformers of healthcare are really oversold as traders de-risk their portfolios within the final 12 months. Actual Sciences, one other index member, which makes a speciality of most cancers diagnostics, have shared value achieve of fifty% throughout the fourth quarter. And [inaudible 00:14:50] however one other 20% was a superb indication that these firms had been in an oversold scenario. So whereas the businesses in our genomic sub-sector did expertise great volatility previously 12 months, the extreme a number of compressions have additionally offered 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 12 months. In the meantime, we’re additionally very excited concerning the medical instrument sub-sector, which holds the most important ready for HTEC at about 25%. It skilled sturdy beneficial properties throughout the quarter, pushed by hospital procedural restoration, and a really giant M and A deal for one in all our index members. In November of final 12 months, we noticed one of many largest ever acquisition within the med tech trade, with Johnson and Johnson buying a biomed, our HTEC index member that now we have 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 value. 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% throughout the quarter, it did negatively impression the attribution for the 12 months, attributable to heavy weighting of the index and ongoing provide chain disruptions that hit lots of the machine firms. Long term, 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 indicate indicators of enchancment as persons are getting extra checkups, and e book 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 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 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 focus on THNQ.

Thanks, Lisa. Now I’ll speak concerning the ROBO International Synthetic Intelligence Index THNQ, which gives publicity to firms world wide main the AI revolution throughout infrastructure in each broad and vertical functions which are increasing GDP, creating new markets, and bettering human situation. We launched the index in 2018, and the area has seen 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, 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 steerage cuts for 2023. Huge 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 all the way down to 4.2X. An organization I need 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 increase. We additionally noticed Mongo DB and Splunk decline, and these are all now at or under all their pandemic beneficial properties.

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 have a look at our index and allocation, now we have 54% into infrastructure at present. And breaking that down, we have got huge knowledge 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.

When you had been right here for our final name, you would possibly keep in mind me speaking about SEMI being lifeless, long-live semi. And at that cut-off date, SEMI had been the worst performing index of the 12 months, 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 really 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 final, outdoors of THNQ, firms which have increased publicity to shopper markets, PC and Cellular, which is seeing a slowdown attributable to 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 form 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 saying a partnership with Continental for superior driverless programs and good dashboards. ASML introduced plans to spice up CapEx to supply their flagship excessive ultraviolet machines.

And this anticipated increase is anticipated to generate extra six to 10 billion {dollars} in income from their steerage by 2025. So, that is a fairly huge enhance of their anticipated demand from their prospects. Their prospects being firms like Taiwan Semiconductor, Intel and Samsung and different huge foundries. Regardless of this information, ASML continues to be buying and selling 25% off earlier highs. Now switching over to the functions, which incorporates sub-sectors, consulting providers, enterprise course of, e-commerce, healthcare, manufacturing unit automation, shopper, we noticed shopper and e-commerce as leaders right here with shopper up 13% and e-commerce up 6%. The flip facet of this additionally, we had seen these two sub-sectors additionally, the opposite largest laggers alongside semiconductor up till Q3. So we’re seeing an indication of resurgence and reversal of oversold situations, with sturdy efficiency from Shopify, Netflix, reserving.com and jd.com. Now, I 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 out there Chat GPT, which is from Open AI, which is partnered with and runs on index member, Microsoft’s Azure AI platform. So I believe everybody’s considering proper now, what finish markets, enterprises, human habits modifications 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 resembling Chat GPT, which is what is offered for us to play with proper now. And so we anticipate this commercialization and subsequent downstream utilization to additional profit and speed up the area and adoption of AI. Core enterprise merchandise, web page and picture technology, communication, and even healthcare may be affected right here. As a reminder, Microsoft acquired Nuance, which gives conversational AI and instruments for healthcare resembling 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 may be constructed to enhance constructive 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 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 principle. So you have acquired 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 help and instruments to maintain this uptime. To verify it is working securely. So we anticipate enhance 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 almost 50% of organizations that they surveyed have at the very least one enterprise unit using AI, with the best proportion being robotic course of automation.

They usually’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 when it comes to adoption and spend within the area. And we anticipate, for instance, generative AI to be probably 100 billion plus trade over the following decade because it turns into extra built-in into totally different merchandise and elements of our lives. And I would like to spotlight that whereas we’re seeing document layoffs, AI spend is anticipated to speed up this 12 months. So we even imagine that, in a harsh surroundings, 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 cross it again to Jeremie, and yeah.

Okay, thanks Zeno and Lisa, and now we’re going to take your questions. So be at liberty to sort them into the Q and A field on the backside of your display screen. And I need to remind all people that on the finish of final 12 months, we printed our 2023 tendencies report by which lots of the extra thrilling development tales round robotics, healthcare know-how and AI are defined intimately. So please check with that, report’s out there on our web site at globalglobal.com.