Q3 2021 In Overview: ROBO International Innovation Indices
54 mins read

Q3 2021 In Overview: ROBO International Innovation Indices


The Robotics & Automation Index (ROBO), the Synthetic Intelligence Index (THNQ), and the Healthcare Know-how & Innovation Index (HTEC) weren’t resistant to the September selloff in fairness markets and declined marginally in Q3. Whereas buyers debate the near-term development and inflation outlook, companies around the globe are striving to speed up their digitization and deploying automation at a file tempo. On this report, we focus on key traits and massive movers throughout our innovation portfolios.

Download Report

Screen Shot 2021-10-13 at 2.41.42 PM

Webinar Transcript:

Jeremie Capron:

Howdy, everybody. And welcome to ROBO International’s October 2021 investor name. My title is Jeremie Capron. I am the director of analysis and speaking to you from New York Metropolis. And with me on the decision at this time, two of our analysts from the analysis crew, Nina Deka, and Zeno Mercer. So right here is our agenda. We’ll evaluation or three know-how innovation portfolios, that’s ROBO, HTEC, and THNQ. And we can be taking your questions, so please be at liberty to sort them into the Q&A field on the backside.

And earlier than that, let me kick off with a short abstract of what we do right here at ROBO International. We’re a analysis and funding advisory firm that is targeted on robotics, AI and healthcare applied sciences. And we’re the creators of research-driven index portfolios which can be designed to learn from these mega traits. Immediately there’s over 4 billion U.S. {dollars} in funds monitoring with methods, primarily in ETFs, on the New York Inventory Alternate, in addition to in Europe and in Asia.

And probably the most notable is ROBO, R-O-B-O, that was the primary robotics, automation and AI ETF that began nearly eight years in the past in 2013. We additionally run THNQ, or THNQ, that’s the synthetic intelligence index. And HTEC, the Healthcare Know-how & Innovation Index. Our methods are primarily based on a research-driven strategy. And we mix that with the advantages of index investing and the ETF wrapper. So the portfolios are composed of greatest in school corporations from around the globe. We now have small, mid, massive caps. They’re roughly equal weighted and so they’re rebalanced quarterly. So these portfolios have a really excessive lively share. Meaning a low overlap with fairness indices just like the S&P500 or international fairness indices.

And we began with ROBO, which covers your entire robotics and automation worth chain, and the bubbles that you may see round it right here, they characterize the sub sectors of focus, and we’ll be speaking about that at this time. So we’ve key areas of utility, like manufacturing facility automation, like logistics and warehouses, like healthcare, meals and agriculture, and so forth. And in addition the enabling applied sciences that make robots and autonomous techniques potential, like sensing, like computing. And prior to now three years we began two further index portfolios round areas that basically stand out by way of the potential for disruptive impression. THNQ on the left-hand aspect on synthetic intelligence, and HTEC on healthcare know-how and innovation on the best hand aspect. And they’re designed utilizing an analogous recipe to ROBO by way of the sub sector strategy and the research-driven collection of greatest in school corporations.

So let’s speak about returns. This quarter, within the third quarter of 2021 international equities declined simply over 1%, and we noticed marginal positive factors within the U.S. that have been offset by declines in rising markets and a major sell-off in China specifically. We had a really sturdy incomes season early within the quarter and a run-up into August, however then development and inflation considerations led to declines in September. When you have a look at the desk right here, you’ll be able to see two of the three ROBO International indices outperformed international equities, ROBO and HTEC declined slightly bit, whereas THNQ was down, whereas HTEC was down greater than 5%.

And you may see right here that the three methods have largely outperformed over the previous one, three and 5 years. And please word that THNQ went reside in August 2018. And so it solely has slightly greater than three years of precise monitor file. And HTEC went reside about two and a half years in the past. So the info right here features a again desk for durations previous to inception. Whereas ROBO, these are all precise reside returns for all durations as a result of it is now turning eight.

Now, let me make just a few feedback in the marketplace and our outlook. First, I would prefer to say that our view that 2021 could be a growth 12 months has largely performed out and the worldwide financial rebound continues to take care of important momentum. We’re not too anxious concerning the current downgrades to financial development. The downgrades are largely because of the Delta variant wave that appears to have peaked by now, and likewise some supply-side bottlenecks. And in the event you take a step again, we’re nonetheless taking a look at a a lot quicker restoration than after prior international recession. And we see ample room for earnings to proceed to develop each historic averages. And one essential challenge is rising inflation, and probably a extra significant tightening of financial coverage. And that may be a truthful concern as a result of thus far policymakers around the globe have remained surprisingly supportive of huge fiscal and financial stimulus.

And that is regardless of the proof of rising costs and now an increasing number of shortages. Take into consideration semiconductors shortages. Take into consideration transport prices going by the roof. Take into consideration vitality. And in addition now labor shortages within the U.S. specifically. We expect our portfolios wouldn’t be resistant to a significant correction within the fairness markets, particularly if we see a financial coverage mistake of tightening too early, however we consider that they’re very effectively positioned to seize the long-term development and returns offered by the know-how revolution.

And in addition the alternatives within the close to time period as a result of the pandemic has clearly accelerated the adoption of those applied sciences. Final 12 months we stated that the digitalization of the financial system had been turbocharged, effectively, this continues very sturdy in 2021. Companies all around the globe are striving to digitize, to automate, to extend effectivity and adapt to speedy modifications by way of what customers anticipate. So in the event you have a look at the ROBO, HTEC and THNQ methods, they’re particularly targeted on know-how disruptors which can be gaining share on this setting.

Many have been huge beneficiaries of this shift. Particularly corporations within the areas of AI, in manufacturing facility automation, in logistics automation, in enterprise software program, in healthcare applied sciences. And so it is in all probability truthful to say that robotics, AI and healthcare tech are seeing an ideal storm of capital proper now. An ideal storm of capital, that’s the title of the current report that our crew printed a few weeks in the past. And you’ll find it and obtain it on our web site.

On this slide you’ll be able to see three quarters into 2021 we’re taking a look at one other file 12 months for mergers and acquisitions, for enterprise funding. We now have a file variety of start of unicorns. We now have large IPOs, and by way of M&A you’ll be able to see right here a few of our index portfolio members which have acquired a takeout provide this 12 months alone. So these are corporations which can be a part of our portfolios receiving a takeout bid, and usually seeing a share value enhance because of this.

Now, let’s speak about ROBO, after which I would move it on to my colleagues to debate HTEC and THNQ. ROBO is a research-driven index of the very best in school robotics and automation corporations from around the globe. And on that subsequent slide you’ll be able to see that it has outperformed the World Fairness Index over time, together with prior to now three years and 5 years, however it’s a little behind thus far in 2021. ROBO was down just below 1% within the fourth quarter, after rising 8% within the first half, and 44% final 12 months. So we’ll name {that a} consolidation prior to now experiences.

Now taking a look at returns by sector, you’ll be able to see right here on the pie chart on the left aspect, the 11 sub-sectors of focus for ROBO, and that’s protecting your entire worth chain, from the core applied sciences that make automated techniques potential, like computing and sensing, and functions throughout manufacturing, logistics, healthcare, meals and ag, et cetera.

And through the quarter we noticed seven of the 11 sectors with positive factors, and the very best performing sectors have been on the prime of the tables right here on the best hand aspect enterprise course of, automation and integration and computing and AI. So what’s enterprise course of automation? It is about automating and integrating the enterprise capabilities, it is primarily software program. So you may discover corporations like ServiceNow that focuses on IT and enterprise workflows. You may discover corporations like PTC and Decile Methods over in Europe or Autodesk. They usually give attention to design capabilities and virtualization, issues just like the digital twin of actual world property. And also you additionally discover Blue Prism, which makes software program robots. And that was among the finest performing shares within the quarter after agreeing a $1.5 billion provide to go non-public. So we noticed copying the inventory in the direction of the tip of the opposite quarter.

Manufacturing facility automation shares. I wish to contact on that as a result of they have been offered round 40% of the index by weight. They have been combined within the quarter. They are usually extra cyclical and delicate to modifications within the financial outlook. However we consider that the cyclical restoration in manufacturing facility automation is de facto in full swing by now. We have entered the fifth quarter of enhancements. And traditionally the upswings have been a collection of 10 to 14 quarters on common. So we predict manufacturing facility automation earnings will proceed to go up and they’re going to in all probability attain a brand new excessive in 2022 subsequent 12 months. Now, by way of the under-performers, you’ll be able to see on the backside of the desk right here that 3D printing had a reasonably tough quarter. It was down greater than 22%. However you’ll be able to see subsequent to that 22% quantity right here that over the previous 12 month the sector remains to be up virtually a 100%.

And in order that pullback that we noticed within the quarter was pushed by 3D Methods. So if we transfer to the subsequent slide, I wish to contact on 3D Methods. That is a supplier of 3D content material to print options, so 3D printers, but additionally the companies round it and the software program round that. They’ve very sturdy positions in 3D printing for medical functions. So take into consideration implants and dental and issues like that. They usually’re additionally very sturdy in industrial functions. And they’re a member of each the ROBO index and the HTEC index. Now the inventory was down after a particularly sturdy 280% plus achieve within the first half of the 12 months. These corporations have made very important progress by way of its restructuring plan that they introduced in the summertime of final 12 months. It is displaying an acceleration within the prime line development, it is displaying increasing margins.

And most just lately they spend $180 million to amass an organization referred to as Oqton that has a cloud-based platform for manufacturing working techniques. So you’ll be able to see 3D Methods can also be shifting aggressively in the direction of a software program enterprise mannequin. Now, let’s speak about a number of the prime efficiency through the quarter. And the primary one is Ambarella. That was up 46%. And Ambarella is a pacesetter in video processing semiconductors, and it had its first large hits in drone cameras and video surveillance. However what we like about Ambarella is that it is quickly turning into an AI firm. They’ve pc imaginative and prescient capabilities which can be gaining important traction with main gamers in video safety. So these guys use Ambarella’s know-how for facial recognition, for habits analytics. They do issues like intrusion detection and so forth. And in addition in automotive the place the pc imaginative and prescient know-how is used for superior driver help and autonomous driving.

And Ambarella reported very sturdy margins within the quarter that is actually supporting our view that they continue to be very aggressive in opposition to their greater friends like Intel and Mobileye. And we predict Ambarella is a extremely enticing acquisition goal. The following one I wish to contact on is HollySys. This can be a Chinese language supplier of automation management techniques. They seem to be a chief among the many home Chinese language gamers, and so they additionally obtain the brand new provide to go non-public, $23 per share. So that may current a few 1.4 billion U.S. {dollars}. And on the finish of final 12 months HollySys had already acquired a low-ball provide at $15 a share from the consortium that was fashioned by a former CEO of the corporate. This time this greater provide at $24 coming from the consortium, together with the founding father of the corporate who retired, I take into consideration six or seven years in the past.

And this gives additionally attracted senior leaders of the enterprise. Present chief, the CEOs of the businesses are supporting it. So we predict HollySys may be very doubtless now to go non-public. Now, let’s contact on two new corporations that have been included in ROBO on the September rebalance. The primary one is AppHarvest, which comes right into a meals and agricultural automation sector. It went public in February. It raised just below half a billion {dollars} in a merger with no threat capital. And what AppHarvest does is that they construct and so they function greenhouses which can be extremely automated, very water environment friendly. And their purpose is to develop fruit and veggies utilizing a really native provide chain, and a whole lot of automation and AI. They’ve plans to run 5 amenities by the tip of the 12 months. And they’re going to have 12 farms by 2025. They’re going to be rising principally tomatoes and leafy greens.

So this firm relies in Kentucky. All proper, the subsequent one is GXO Logistics. That is additionally in a newly public firm. It is what formally was the logistics division of XPO. So GXO is a world chief in what we name contract logistics. They supply extremely automated provide chain administration options for very massive corporations, multinational blue chip corporations like Nestle, like Nike, these corporations that select to outsource their logistics to specialists that may leverage the facility of automation. So it is the dealing with, it is the storage, the distribution of warehouse-based items. And in the event you have a look at GXO, they’ve a really excessive publicity to e-commerce after all, e-commerce and omnichannel retail, that is greater than 50% of their income. So I’ll cease right here and move it on to Nina to speak about healthcare know-how. And earlier than I try this, simply wish to remind everybody, you’ll be able to ask your questions utilizing the Q&A field on the backside. On to you, Nina.

 

Nina Deka:

Thanks, Jeremie. All proper, so now we will transition over to HTEC. That is the ROBO International Healthcare Know-how & Innovation Index. And so, to begin with we’ll discuss concerning the efficiency. Healthcare innovation, as we’re typically seeing this quarter is a marathon, not a dash. And right here we’ve through the quarter the index returned a lack of 5% and that underperformed the worldwide fairness index of adverse 1% after which the worldwide healthcare index, which was 1% returns over the quarter. But when we have a look at a three-year trajectory healthcare innovation, we nonetheless have very excessive conviction that there are nonetheless loads to achieve over time, or over the long term. The three-year returns you’ll be able to see for the HTEC index are roughly double the efficiency of the usual international healthcare indices. And so individuals typically ask, “Properly, what is the distinction between HTEC and another healthcare indexes?”

And so I simply needed to point out you within the subsequent slide, if you have a look at the sub sector breakdown, we give attention to a really diversified listing of sub sectors. We have got 9 totally different sub sectors right here that we give attention to. And these are the areas in healthcare that we consider characterize probably the most disruption over the subsequent decade. The businesses which can be market leaders, know-how leaders in these areas, similar to medical devices, diagnostics, genomics, telehealth. We consider that over the long term there’s a whole lot of disruption that we will be seeing, and we’re solely simply to start with. When you have a look at the best aspect of this slide, we present the sub-sector returns. And as you’ll be able to see, let’s begin with kind of the wants enchancment class. The telehealth, it returned adverse 30% throughout Q3. This sub sector was pressured largely by a number of the corporations within the index which can be China-based, Alibaba Well being, JD Well being, for instance, Ping An Healthcare.

These are market leaders in China for telehealth. They distribute prescription drugs to customers, and so they have a whole lot of upward trajectory for development as an increasing number of drug and pharmaceutical purchases transfer from the mother and pop pharmacies and the brick and mortar pharmacies to on-line buying. Additionally, we’re in very early days with these corporations, however we anticipate to see a excessive diploma of M&A sooner or later the place these corporations look to increase their healthcare companies capabilities. For instance, go additional into telemedicine companies, like physician affected person visits, in addition to offering digital well being platforms to hospital techniques in China. So, we anticipate to see a whole lot of development on this sub sector over time. And these are simply very early days. Teladoc is one other international market chief on this house. Teladoc reported earnings final quarter, the place they indicated that their telemedicine visits have been up 28% 12 months to 12 months. To us, that’s an indicator that telemedicine is right here to remain, and that there is nonetheless a lot extra development to return.

And bear in mind, 12 months over 12 months development in telemedicine is fairly important, as a result of second quarter final 12 months was the peak of the pandemic when nobody might see a health care provider in-person. So, for the corporate to develop a 28% over final 12 months with a excessive quantity is only a sturdy indicator that we’re solely only the start right here. And we anticipate to see much more in the case of hospital integrations and physician to physician communication, gadget to physician, gadget to affected person, there’s nonetheless a lot extra integration that is going to be coming tele-health. So keep tuned there. After which perhaps we’ll transition to one of many out performers, course of automation. Course of automation sub sector features a bunch of corporations like Catalent as proven right here on this slide. T Can is one other one Thermo Fisher Scientific. Once we consider course of automation in healthcare, we take into consideration the businesses which can be enabling different healthcare innovators to do what they do greatest. For instance, an estimated one-third or 37% of all medication which can be manufactured are literally outsourced to different corporations, generally known as contract improvement manufacturing organizations.

And an estimated two thirds of all scientific trials are additionally outsourced to corporations like IQVIA for instance. And so right here we’ll dig slightly bit deeper into Catalent. This can be a firm that returned probably the most within the course of automation sub sector. Catalent is much less identified by many individuals, however they have been truly one of many companions of each Moderna and J&J for manufacturing their COVID vaccines. This firm has been round for a very long time. Actually, they invented the smooth gel. Many individuals are accustomed to taking smooth gels versus the powder-based oral medication. So Catalent is an organization that basically has targeted within the final 5, 10 years on investing its capabilities in biotech. So what this implies is that we all know that there is been a whole lot of biotech investing exercise. Loads of IPOs, a whole lot of startups, a whole lot of corporations which can be creating one drug or a few medication, and these medication are targeted as we get an increasing number of exact with drugs in very individualized therapeutics.

So one drug would possibly solely intention to deal with 20 individuals throughout a scientific trial, perhaps 5 individuals. It is actually tough to fabricate a drug at scale when there’s not that many individuals which can be going to wind up taking it. So a whole lot of these biotech startups haven’t got the bandwidth to fabricate the medication for his or her scientific trials, and even after the drug will get FDA accredited. In order that they outsource it. And Catalent has gone all in, on with the ability to make a small amount of those extremely specialised medication. And this mRNA remedy is a working example. They invested within the potential to fabricate mRNA. And now they have a devoted manufacturing line that’s enabling them to develop into a topic knowledgeable. So take into consideration the longterm. We now have mRNA as a brand new therapeutic, launched to us by COVID-19. However over time there’s going to be many extra mRNA therapies which can be going to return to market.

Catalent may be very effectively positioned to seize that development over a fast-growing theme. And that is only one instance. And so we’ll simply transfer on shortly to the opposite leaders of the index over the quarter. Moderna, as I discussed, returned 64%, no shock there, a whole lot of development around the globe offering the COVID vaccines. However actually what we’re actually enthusiastic about right here with this firm is now that mRNA is a acknowledged remedy, we anticipate to see many extra therapies coming by, and Moderna has a really wealthy pipeline. Their progressing trials for a virus referred to as CMV for flu. They over time anticipate to launch a flu mixed with the COVID vaccine potential, and so some actually thrilling issues to occur there effectively past the pandemic.

After which with Dexcom. Dexcom is reported sturdy development 12 months over 12 months in income over the quarter, additionally they have filed for his or her CE mark approval. That is the FDA approval in course of in Europe. They filed for his or her subsequent technology steady glucose monitoring gadget. This can be a diabetes firm. And they also anticipate to launch that in Europe by the tip of the 12 months. This new technology CGM gadget that they are launching is the dimensions of a nickel. It is like 60% smaller than what’s at the moment accessible and broadly used in the marketplace. So Dexcom is understood for making probably the most correct CGM gadget in the marketplace. And we’re actually excited to see a big development trajectory there as Dexcom additional appears to be like to have extra individuals utilizing the CGM gadget, like individuals with sort two diabetes.

After which we’ll simply shortly present you the brand new additions to the index within the quarter. A few attention-grabbing corporations right here, Akoya is de facto targeted closely on spatial biology. So that is bringing some neat publicity to spatial biology into the index. This can be a know-how that many individuals have heard of subsequent gen sequencing in genomics, which is only a option to sequence the DNA. Spatial biology is taken into account the subsequent gen sequencing in that there is a big trajectory for adoption. And what it means is that it mainly offers you extra detailed view of a human genome. So in the event you have been to match this to say, as an instance you needed to make a smoothie and also you mix all fruits collectively, after which you do not actually know, you assume that there is raspberries in there. After which there’s in all probability some strawberries and perhaps some banana, however you are undecided what number of of every and what the parts and ratios are. However then in the event you take that analogy and have a look at say a fruit salad, then you’ll be able to depend what number of fruits, items there are of all the things in there and the place they’re positioned within the bowl.

That analogy sort of offers you an instance of how one can actually have a look at say a tissue pattern and know precisely the place the DNA is that is inflicting the several types of most cancers and the place there is likely to be variance and totally different mutations that may even be inflicting most cancers. So actually thrilling stuff there. And we have got, I might go on for ages on these different corporations and the cool know-how occurring there. Twist is giving, it is an excellent enabler of artificial biology. Destiny, we will discuss extra about that within the Q&A as effectively. So with that I am going to cease and move it alongside to our colleague to speak about THNQ. Zeno, I believe you are on mute.

 

Zeno Mercer: 

Thanks, Nina. All proper. Hey all people, I am Zeno. I’ll cowl THNQ at this time, that is T-H-N-Q. So THNQ is a pure play synthetic intelligence technique, aiming to seize each infrastructure and utilized innovation within the house. For the reason that index launched in late 2018, we have seen the index double in worth as adoption of those applied sciences develop. In fact, over the previous 12 months we noticed the speedy digitalization of practically all the things in our lives. And as such we’re actually enthusiastic about this house because the AI market is projected to generate over $400 billion in income by 2025, up from 70 billion in 2020. So efficiency over the previous 12 months, we had a 67% achieve in 2020. The THNQ index was up 7.4% 12 months to this point on the finish of the third quarter, barely outperforming international equities for a 0.7% loss for the quarter. This 12 months alone the THNQ index has had seven takeout gives from a mixture of strategic and monetary sponsors.

Now shifting on to our sub sectors. So six of our 11 sub sectors posted optimistic returns with highlights throughout community and safety, consulting companies and enterprise processes. These have been main the way in which whereas cloud suppliers, healthcare and massive knowledge and analytics beneath carried out. Now, it looks like everybody on this planet is targeted on, and for good cause, the significance of semiconductors and provide chain points that proceed to be mirrored in auto electronics, practically all the things now, as demand skyrockets. And former cycles is greater demand led to overproduction and subsequent oversupply and diminished costs. This time we consider that we’ve far more secular traits going for the sector, elevated cloud computing, wearables, cell, and 5G. Enterprise AI, autonomous automobiles, IoT distant work, want I am going on? And naturally, blockchain, all creating demand up and down the worth chain.

Community and safety, shifting on to the subsequent slide outperformed for the second consecutive quarter up 10%, and up 65% over the previous 12 months. On the extra safety aspect, you may need seen issues within the information just lately about AI and safety. We now have Palo Alto Networks and Fast set in main the way in which up 29% in 19% respectively. They have been each suppliers of superior cybersecurity options. And we have been seeing a number of secular traits within the cyber safety market, which is anticipated to double over the subsequent 5 years with spend anticipated to develop greater than $200 billion. This is because of elevated cyber safe assaults or refined assaults and better stakes. We now have now healthcare, finance, commerce, authorities and infrastructure and extra, all mainly on the cloud now, which is it is deserves and enhancements. However this has additionally launched a plethora of vulnerabilities, which solely boosts calls for for the companies.

On the extra community aspect, you’ve got corporations like Pure Storage, which have been up 29% for the quarter, which continues to see excessive deployment of their trade main scalable cloud storage options, offering extra autonomus and quicker deployment for patrons who proceed to see elevated span round AI and cloud structure. Of word, Pure Storage just lately launched an trade first resolution that permits autonomous storage as a code for on-demand storage resolution, which might massively velocity up deployment occasions. So this could make it even simpler and safe to spend cash on their companies too.

Transferring on to the subsequent slide and subsequent sector, we’ve cloud suppliers, which underperformed and we’re down 9% for the quarter. General combine outcomes as main Chinese language AI corporations, similar to Alibaba and Tencent valuations faltered as the general Chinese language market dropped beneath stress from each political and regulatory threat, resulting in multi-year low valuations. Baidu, one other index member, one of many world’s largest AI corporations on the forefront of quite a few improvements throughout autonomous automobiles, promoting, search and extra, was buying and selling at simply 1.5 fairness worth of the gross sales. We anticipate a restoration right here and thus far in This fall the place issues have been principally flat or down worldwide, these Chinese language AI corporations are up 10 to fifteen%. On the extra optimistic entrance Cloudflare was up 6.5%. Now, for many who do not know, Cloudflare gives community companies and safety options for web site internet hosting and content material supply, additionally IoT and cloud platforms, and it’s up 40% thus far in This fall.

As income is anticipated to go 48% 12 months over 12 months as they see a large demand for his or her companies. They proceed to innovate. And as instance, one of many current merchandise they launched is to forestall phishing assaults utilizing machine studying. So shifting on to the subsequent slide, thanks. One among our prime performing corporations I needed to spotlight is Atlassian. So Atlassian gained 52% over the third quarter. They’re a Australian-based cloud know-how options supplier targeted on workflow and AI collaboration instruments for builders and enterprises with over 200,000 shoppers now. Atlassian has delivered constant 30% top-line development prior to now few years, pushed by its breadth of know-how and market within the cloud market. This additionally consists of devops and this helps empower the groups and digital applied sciences for the world-leading functions. And they also’re seeing sturdy adoption by massive and small enterprises alike.

Subsequent I would prefer to circle again to Palo Alto Networks, one other sturdy performer for the quarter, which is up 29%. So Palo Alto Networks is the worldwide cybersecurity chief with each {hardware} and software program options, using proprietary cybersecurity synthetic intelligence, and so they maintain the biggest market share amongst its friends with tens of 1000’s of organizations. And they’re a pacesetter in Gartner’s Magic Quadrant for these options. Subscription income continues to develop strongly, and earlier than COVID we have been at 36%, there’s now 44% of the income. In order that’s very sticky enterprise and constant income streams. One other spotlight and development driver is earlier this 12 months they acquired FedRAMP certification for a number of of their cloud options. That is basically the seal of approval for know-how and safety for the U.S. authorities. So we will begin seeing an increasing number of deployment throughout federal and municipal authorities companies.

Lastly, I would prefer to cowl a brand new member highlight. After 4 new additions final quarter, we simply had one this quarter in our enterprise course of sub sector. Upstart Holdings is an AI-empowered lending platform that disrupts the normal lending course of by basically creating their very own credit score scoring system. And this helps automate lending. So additionally they assist with each the lending and borrowing platform for each side. So what they’re doing is offering private loans to a massively underserved unsecured market in auto credit score and mortgage markets. Upstart is gaining market share and is projected to develop top-line income 220% to achieve over a 100 billion in income subsequent 12 months, as they proceed to achieve companions in diversified income streams on this house. For example, this previous week they partnered with Kentucky’s largest credit score union to assist energy their again finish. One very last thing I needed to cowl is Aspen Tech. Jeremy talked about we have had numerous takeouts. We have had seven thus far this 12 months, together with Aspen Tech, which noticed a $11 billion takeout by Emerson Electronics this previous week. Now I’ll move it again to Jeremie who will assist wrap issues up.

 

Jeremie Capron:

Thanks, Zeno, thanks, Nina. We will transfer on to the Q&A bit of this name. And I see we’ve just a few questions which have already are available in. Please be at liberty so as to add yours. And we’ll take the primary one. Do ETF seize robotics and AI within the ag sector? Sure. Quick reply is sure. If we will return to this slide that reveals the ROBO sub sectors, you’ll be able to see the meals and ag sub sector in there. We expect there’s a whole lot of very thrilling improvement round ag know-how and meals and beverage manufacturing, and that the depth of automation on this sector is rising very quickly. And so at this time the meals and ag sector is simply round 5% of the index, so it is one of many smaller utility sectors. The majority of the exercise at this time remains to be in manufacturing and logistics.

After which they’re actually up and coming sectors of adoption are healthcare and in meals and ag. So in meals and ag, what you are going to discover is corporations like, corporations that automate the manufacturing traces for meals and beverage. So the GEA Group in Germany that is targeted on the dairy trade, and so they do issues like cow milking robots as effectively. You may discover corporations like Krones, additionally in Germany. Krones is the world chief in bottling equipment. And you will find corporations like John Bean that is targeted on the protein market. So automation gear for the meat trade. After which, corporations like UpHarvest that I touched on early on the decision. That is an organization that is a current addition to ROBO and that is extremely automated greenhouses. After which, within the non-public aspect earlier stage corporations we’re seeing very thrilling developments. Firms which can be utilizing facial recognition sort of pc imaginative and prescient to investigate every plant by rolling over the crops, utilizing a tractor and behind it driving pc imaginative and prescient gear.

And also you’re capable of analyze the degrees of hydration, the potential contamination by ailments, the necessity for pesticides. And the outcomes are fairly fascinating. We’re capable of scale back the usage of pesticides by an element of 10. So some very thrilling developments there. Additionally, on the non-public aspect we anticipate a whole lot of these corporations will ultimately go public like UpHarvest did earlier this 12 months.

After which we’ll transfer on to the subsequent query. I would like my colleagues to leap in right here. Let’s speak about small and mid cap progressive corporations. How do you go about discovering them? And significantly those that go unnoticed by the promote aspect. Zeno, do you wish to go in first?

 

Zeno Mercer: 

Yeah, I can begin right here. So basically the way in which we go about that is, we actually take a holistic have a look at the areas we’re taking a look at, our sub-sectors. Whereas we do clearly have entry to and use numerous useful resource sources, we do provide you with our personal sort of prime down bottoms up approaches to taking a look at totally different issues and alternatives in society. So, taking a look at smaller, you talked about, not likely lined. I imply, whereas that’s essential, whereas components like liquidity and entry and market is essential, we’re taking a look at discovering the very best in school applied sciences and we’ve our personal proprietary scoring system. We actually take a deep have a look at the groups, the innovation issue behind these applied sciences and what they’ll do, and the way that adoption will play out, how they are going to seize income within the enterprise mannequin. So yeah, I’d say that mainly summarizes my strategy and our strategy on the AI aspect.

 

Nina Deka:

After which by way of healthcare, it is truly fairly related throughout the board, throughout our indices. However there, in the event you have a look at the non-public world, there’s been simply an unlimited quantity of funding in healthcare innovation from an early stage to late stage enterprise recurring standpoint. And we’ve seen an inflow of recent IPOs, significantly within the healthcare IT house in what we name knowledge analytics or telehealth in our portfolio. However, after which we’re additionally seeing a whole lot of investments by way of M&A. So the way in which that we do that is we have a look at, I suppose, a top-down strategy. We glance throughout the totally different industries of healthcare. I discussed earlier there are 9 sub sectors, however inside them there’s additionally, like for instance, you have a look at medical devices. Inside medical devices there’s going to be give attention to cardiology, diabetes, 3D printing.

There’s a whole lot of totally different locations, identical inside robotics. There’s going to be give attention to surgical robotics. There’s additionally robotics used within the pharmacy. So we have a look at the totally different functions throughout our 9 sub sectors and of various indications and areas of healthcare. After which by there, by deep elementary analysis and trade evaluation, that is the place we uncover who the gamers are. Loads of them are non-public. Loads of them are small, mid cap and plenty of are massive cap. After which what we additionally see by M&A is that a whole lot of the businesses wind up getting acquired, typically by corporations which can be already in our portfolio. So it is, I believe it is only a broader market degree top-down strategy that helps us seize the totally different measurement corporations that we then consider with our proprietary scoring system to find out whether or not or not that they’d be a very good match into our index. Hope that solutions your query?

 

Jeremie Capron:

Thanks, Nina. So let’s transfer on to the subsequent one. And truly there’s a few questions across the development orientation of our portfolios, and whether or not they would carry out as effectively in a worth market. I believe that is a very reasonable query. And positively on the healthcare tech aspect and on the AI aspect, these are positively excessive development portfolios. And so if we’re in a worth market, you would not anticipate these portfolios to carry out as effectively. That may be a truthful remark. I’d simply spotlight that on the ROBO aspect nonetheless, there’s a whole lot of worth within the portfolio. Actually, was simply taking a look at my display screen a couple of minutes in the past, and we’ve greater than 20 corporations within the ROBO index out of simply over 80 complete members which have a ahead P/E beneath 17.

So considerably under the market common. And usually these corporations are extra cyclical in nature. They’re concerned within the manufacturing facility automation world. There are usually extra capital items forms of companies promoting gear and equipment. Loads of these shares are in Japan, and proper now they’re low-cost. And usually what you see when we’ve a rotation into cyclicals and the worth areas of the market, we see these shares carry out very effectively. And in the event you return to the long-term efficiency chart of ROBO, you will notice that it performs effectively, even in a worth sort market. And I’d spotlight specifically the primary quarter, and we had the sell-off, the COVID lockdown pushed sell-off in March of 2020. In Q1 of 2020 ROBO outperformed international equities.

After which we’ve a query round valuations, if we might touch upon valuations for every index? And I am going to begin with ROBO and move it on to Zeno and Nina for HTEC and THNQ. So by way of valuations for ROBO, at this time the index is buying and selling on a ahead P/E of 29 occasions. And that may be a 20% premium to the long-term common, which is simply round 25. So we’re buying and selling at a premium, but it surely’s additionally very clear that the earnings trajectory may be very exceptional proper now. Within the second quarter we noticed EPS beat by 12% on the median, and EPS development within the second quarter was 68% 12 months over 12 months. That was the strongest development because the inception of the index in 2013.

Now, the hurdle was low. A 12 months in the past in Q2 you had a 19% 12 months over 12 months decline, however which means we’re already making new highs by way of earnings total in combination for the fund. And we anticipate EPS to develop by greater than 80% within the third quarter, and for the total 12 months 40% in 2021. So we’re we on a quicker development trajectory, and that usually deserves the next ahead P/E. So Nina and Zeno, are you able to please touch upon valuations for THNQ and HTEC?

 

Nina Deka:

Yeah, positively. So for HTEC we usually have a look at, as a result of so most of the corporations are usually not but worthwhile, they’re in a excessive development state. So we have a look at ahead EV to gross sales as a very good benchmark for valuation. And through the quarter, as I discussed, the index returned adverse 5%. So the analysis is definitely low now relative. It is at 6.4 occasions for EV gross sales. That compares to about 6.95 occasions 12 months over 12 months. So this quarter final 12 months it was nearly seven occasions EV to gross sales. And final quarter it was, so it is also down sequentially. Final quarter it was 7.1 EV to gross sales ratio. So some would argue that this might seem like a pleasant entry level for HTEC.

 

Zeno Mercer:

And for THNQ, sort of much like what Nina stated. We have seen some valuation contraction, particularly as we talked about earlier amongst Chinese language corporations. So proper now we have got ahead EV gross sales of 9.38. Clearly we’ve a whole lot of excessive development tech corporations which have gained a whole lot of steam throughout and due to the pandemic. We have seen adoption that in all probability would have taken 5 to 10 years, and a few of these corporations have a mixture of each sticky companies and lend and increase alternatives. So, equally assume that from a valuation perspective and alternative perspective that earnings are going to proceed to develop. We will see extra profitability, margins will keep sturdy, and yeah, simply fairly optimistic outlook right here for that sector.

 

Jeremie Capron: 

Thanks each. Let’s transfer on. I see we’ve some questions associated to particular corporations, so perhaps we will take these. We now have one on Destiny, that is a brand new member in HTEC. We now have one on Butterfly Networks, perhaps Zeno, you can begin on Butterfly Networks, after which Nina, can you’re taking Destiny?

 

Nina Deka: 

Positive.

 

Zeno Mercer:

Positive. So Butterfly Community for many who are usually not acquainted, is a greatest in school transportable ultrasound gadget with an AI firm connected to it. Just a bit bit concerning the market on this planet. You have received about two third of the world that does not have entry to dependable diagnostic know-how. And it is a mixture of value, as a result of these units historically value extra, infrastructure and having native consultants and folks capable of truly deal with and know what they’re doing in these areas. So you’ve got so many preventable well being outcomes that may be solved by ultrasound intervention and diagnostic discovery. So, Butterfly Community can, and the purpose is to basically present wayman, anyone with the flexibility to make use of this mix of their actually proprietary nice ultrasound with AI and distant entry telehealth for second opinions and reside of steerage. They usually proceed so as to add new capabilities, and that is accessible by a subscription service.

So you’ve got each a {hardware} and software program play. And simply, sort of in any other case you have received, the common ultrasound technician, over $85,000 a 12 months within the U.S. Different locations on this planet cannot actually afford that. And a platform like this might enable huge well being alternatives and enhancements to high quality of life. So you have received common drugs, emergency drugs, anesthesiology, hospital. They’ve added vets. So, all of the vets around the globe, with horses, docs, cats, canines. And by way of development alternatives past that, they’re even taking a look at past enhancing their core ultrasound going into wearables, which whereas they have not introduced something particular, given the innovation behind their Butterfly IQ gadget, we anticipate nothing lower than one thing fairly progressive there.

 

Nina Deka:

And I can take over with Destiny. So Destiny Therapeutics is an organization that is targeted on one thing referred to as NK cell remedy, NK stands for pure killer. That is actually thrilling stuff right here. So I suppose in the event you have been to match NK to CAR T remedy, perhaps many individuals have heard of CAR T remedy. CAR T is one thing that has been capable of basically treatment most cancers, but it surely’s received some limitations. With the intention to deal with any individual for utilizing a CAR T remedy it’s good to take a pattern out of the affected person, ship it off, have the precise drug manufactured, utilizing the cells that got here from the affected person, ship it again, after which administer it. And it might be, it has negative effects. It might be truly poisonous contained in the human physique. And it’s totally costly. That total course of prices a pair 100,000 {dollars}.

With Destiny, with pure killer therapeutics, they’re truly extracting stem cells that they’ll use and create just about something they need with. And so what they’re utilizing stem cells for is to make one thing referred to as pure killer, and so they can replicate and make many of those. And it is mainly off the shelf and so they can retailer it. After which you’ll be able to, when you manufacture the NK cell, you’ll be able to then apply it to anybody. So you do not have to then take the affected person’s specimen, ship it off, after which administer it. You possibly can simply actually order it and administer the therapy on the fly, and it is already able to go.

NK cells are additionally identified to be much less poisonous, have a much less poisonous response when administered into the human physique. And it additionally prices loads much less to manage their remedy. It prices about $2,000 versus a few 100,000 of the CAR T. So these are nonetheless in scientific trials, however they’re advancing. And so we’re awaiting extra knowledge that helps that when this remedy is run, that it lasts so long as CAR T. So actual thrilling stuff right here in NK, and I hope that we’ll have extra to report within the coming years.

 

Jeremie Capron:

So I hope that solutions your questions. If in case you have extra questions, be at liberty to direct them to our web site or information@roboglobal.com. I wish to reiterate that we do share a few of our analysis by way of a biweekly e-newsletter that you may join on the web site, roboglobal.com. And we very a lot stay up for chatting with you once more very quickly. Thanks all, and have an excellent day.



Leave a Reply

Your email address will not be published. Required fields are marked *