Q3 2021 In Evaluate: ROBO World Innovation Indices

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The Robotics & Automation Index (ROBO), the Synthetic Intelligence Index (THNQ), and the Healthcare Know-how & Innovation Index (HTEC) weren’t proof against the September selloff in fairness markets and declined marginally in Q3. Whereas traders debate the near-term progress and inflation outlook, companies all over the world are striving to speed up their digitization and deploying automation at a document tempo. On this report, we talk about key developments and large movers throughout our innovation portfolios.

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Webinar Transcript:

Jeremie Capron:

Howdy, everybody. And welcome to ROBO World’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 the moment, two of our analysts from the analysis group, Nina Deka, and Zeno Mercer. So right here is our agenda. We are going to assessment or three expertise innovation portfolios, that’s ROBO, HTEC, and THNQ. And we shall be taking your questions, so please be happy to kind 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 World. 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 might be designed to learn from these mega developments. At the moment 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 essentially 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 finest in school firms from all over the world. We have now small, mid, giant caps. They’re roughly equal weighted they usually’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 the complete robotics and automation worth chain, and the bubbles which you could see round it right here, they symbolize the sub sectors of focus, and we’ll be speaking about that at the moment. So now we have key areas of software, like manufacturing unit 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 programs potential, like sensing, like computing. And up to now three years we began two extra index portfolios round areas that actually stand out by way of the potential for disruptive impression. THNQ on the left-hand facet on synthetic intelligence, and HTEC on healthcare expertise and innovation on the precise hand facet. And they’re designed utilizing the same recipe to ROBO by way of the sub sector strategy and the research-driven collection of finest in school firms.

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 aspects within the U.S. that have been offset by declines in rising markets and a major sell-off in China particularly. We had a really sturdy incomes season early within the quarter and a run-up into August, however then progress and inflation issues led to declines in September. Should you have a look at the desk right here, you may see two of the three ROBO World indices outperformed international equities, ROBO and HTEC declined somewhat 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 stay in August 2018. And so it solely has somewhat greater than three years of precise observe document. And HTEC went stay 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 stay returns for all durations as a result of it is now turning eight.

Now, let me make a number of feedback in the marketplace and our outlook. First, I might wish to say that our view that 2021 could be a increase 12 months has largely performed out and the worldwide financial rebound continues to take care of important momentum. We’re not too apprehensive concerning the latest downgrades to financial progress. The downgrades are largely because of the Delta variant wave that appears to have peaked by now, and in addition some supply-side bottlenecks. And in case 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 vital situation is rising inflation, and doubtlessly a extra significant tightening of financial coverage. And that could be a truthful concern as a result of to this point policymakers all over the world have remained surprisingly supportive of large fiscal and financial stimulus.

And that is regardless of the proof of rising costs and now increasingly more shortages. Take into consideration semiconductors shortages. Take into consideration delivery prices going by means of the roof. Take into consideration power. And in addition now labor shortages within the U.S. particularly. We expect our portfolios wouldn’t be proof against a significant correction within the fairness markets, particularly if we see a financial coverage mistake of tightening too early, however we imagine that they’re very properly positioned to seize the long-term progress and returns offered by the expertise 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 mentioned that the digitalization of the economic system had been turbocharged, properly, this continues very sturdy in 2021. Companies all all over the world are striving to digitize, to automate, to extend effectivity and adapt to speedy modifications by way of what shoppers anticipate. So in case you have a look at the ROBO, HTEC and THNQ methods, they’re particularly targeted on expertise disruptors which might be gaining share on this atmosphere.

Many have been large beneficiaries of this shift. Particularly firms within the areas of AI, in manufacturing unit 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 latest report that our group printed a few weeks in the past. And yow will discover it and obtain it on our web site.

On this slide you may see three quarters into 2021 we’re taking a look at one other document 12 months for mergers and acquisitions, for enterprise funding. We have now a document variety of start of unicorns. We have now huge IPOs, and by way of M&A you may see right here a few of our index portfolio members which have acquired a takeout provide this 12 months alone. So these are firms which might be a part of our portfolios receiving a takeout bid, and sometimes seeing a share worth increase consequently.

Now, let’s speak about ROBO, after which I might go it on to my colleagues to debate HTEC and THNQ. ROBO is a research-driven index of the perfect in school robotics and automation firms from all over the world. And on that subsequent slide you may see that it has outperformed the World Fairness Index over time, together with up to now three years and 5 years, however it’s a little behind to this point 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 up to now stories.

Now taking a look at returns by sector, you may see right here on the pie chart on the left facet, the 11 sub-sectors of focus for ROBO, and that’s protecting the complete worth chain, from the core applied sciences that make automated programs potential, like computing and sensing, and purposes throughout manufacturing, logistics, healthcare, meals and ag, et cetera.

And throughout the quarter we noticed seven of the 11 sectors with positive aspects, and the perfect performing sectors have been on the high of the tables right here on the precise hand facet 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 firms like ServiceNow that focuses on IT and enterprise workflows. You will discover firms like PTC and Decile Programs over in Europe or Autodesk. And so they give attention to design capabilities and virtualization, issues just like the digital twin of actual world belongings. 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 personal. So we noticed copying the inventory in direction of the top of the opposite quarter.

Manufacturing unit 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 blended within the quarter. They are typically extra cyclical and delicate to modifications within the financial outlook. However we imagine that the cyclical restoration in manufacturing unit automation is de facto in full swing by now. We have entered the fifth quarter of enhancements. And traditionally the upswings have been a sequence of 10 to 14 quarters on common. So we predict manufacturing unit 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 may see on the backside of the desk right here that 3D printing had a fairly tough quarter. It was down greater than 22%. However you may see subsequent to that 22% quantity right here that over the previous 12 month the sector remains to be up nearly a 100%.

And in order that pullback that we noticed within the quarter was pushed by 3D Programs. So if we transfer to the following slide, I wish to contact on 3D Programs. That is a supplier of 3D content material to print options, so 3D printers, but in addition the companies round it and the software program round that. They’ve very sturdy positions in 3D printing for medical purposes. So take into consideration implants and dental and issues like that. And so they’re additionally very sturdy in industrial purposes. 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 firms have made very important progress by way of its restructuring plan that they introduced in the summertime of final 12 months. It is exhibiting an acceleration within the high line progress, it is exhibiting increasing margins.

And most lately they spend $180 million to accumulate an organization referred to as Oqton that has a cloud-based platform for manufacturing working programs. So you may see 3D Programs can be shifting aggressively in direction of a software program enterprise mannequin. Now, let’s speak about a number of the high efficiency throughout the quarter. And the primary one is Ambarella. That was up 46%. And Ambarella is a frontrunner in video processing semiconductors, and it had its first huge 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 laptop imaginative and prescient capabilities which might be gaining important traction with main gamers in video safety. So these guys use Ambarella’s expertise 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 expertise 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 engaging acquisition goal. The following one I wish to contact on is HollySys. It is a Chinese language supplier of automation management programs. They seem to be a chief among the many home Chinese language gamers, they usually additionally obtain the brand new provide to go personal, $23 per share. So that may current a couple of 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 increased 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 provides additionally attracted senior leaders of the enterprise. Present chief, the CEOs of the businesses are supporting it. So we predict HollySys could be very possible now to go personal. Now, let’s contact on two new firms 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 they usually function greenhouses which might be extremely automated, very water environment friendly. And their purpose is to develop vegatables and fruits utilizing a really native provide chain, and loads of automation and AI. They’ve plans to run 5 amenities by the top of the 12 months. And they’re going to have 12 farms by 2025. They will be rising largely tomatoes and leafy greens.

So this firm relies in Kentucky. All proper, the following 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 giant firms, multinational blue chip firms like Nestle, like Nike, these firms 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 case you have a look at GXO, they’ve a really excessive publicity to e-commerce in fact, e-commerce and omnichannel retail, that is greater than 50% of their income. So I’ll cease right here and go it on to Nina to speak about healthcare expertise. And earlier than I try this, simply wish to remind everybody, you may 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 World Healthcare Know-how & Innovation Index. And so, initially we’ll discuss concerning the efficiency. Healthcare innovation, as we’re generally seeing this quarter is a marathon, not a dash. And right here now we have throughout the quarter the index returned a lack of 5% and that underperformed the worldwide fairness index of destructive 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 lots to realize over time, or over the long term. The three-year returns you may see for the HTEC index are roughly double the efficiency of the usual international healthcare indices. And so folks typically ask, “Effectively, what is the distinction between HTEC and another healthcare indexes?”

And so I simply wished to point out you within the subsequent slide, while you have a look at the sub sector breakdown, we give attention to a really diversified record of sub sectors. We have got 9 completely different sub sectors right here that we give attention to. And these are the areas in healthcare that we imagine symbolize essentially the most disruption over the following decade. The businesses which might be market leaders, expertise leaders in these areas, resembling medical devices, diagnostics, genomics, telehealth. We imagine that over the long term there’s loads of disruption that we will be seeing, and we’re solely simply to start with. Should you have a look at the precise facet of this slide, we present the sub-sector returns. And as you may see, let’s begin with type of the wants enchancment class. The telehealth, it returned destructive 30% throughout Q3. This sub sector was pressured largely by a number of the firms within the index which might 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 shoppers, they usually have loads of upward trajectory for progress as increasingly more 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 firms, however we anticipate to see a excessive diploma of M&A sooner or later the place these firms 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 programs in China. So, we anticipate to see loads of progress on this sub sector over time. And these are simply very early days. Teladoc is one other international market chief on this area. 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 progress to return.

And bear in mind, 12 months over 12 months progress 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 physician 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 just the start right here. And we anticipate to see much more in the case of hospital integrations and physician to physician communication, system to physician, system to affected person, there’s nonetheless a lot extra integration that is going to be coming tele-health. So keep tuned there. After which possibly we’ll transition to one of many out performers, course of automation. Course of automation sub sector features a bunch of firms like Catalent as proven right here on this slide. T Can is one other one Thermo Fisher Scientific. After we consider course of automation in healthcare, we take into consideration the businesses which might be enabling different healthcare innovators to do what they do finest. For instance, an estimated one-third or 37% of all medicine which might be manufactured are literally outsourced to different firms, often known as contract improvement manufacturing organizations.

And an estimated two thirds of all scientific trials are additionally outsourced to firms like IQVIA for instance. And so right here we’ll dig somewhat bit deeper into Catalent. It is a firm that returned essentially 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 mushy gel. Many individuals are acquainted with taking mushy gels versus the powder-based oral medicine. So Catalent is an organization that actually 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 loads of biotech investing exercise. A variety of IPOs, loads of startups, loads of firms which might be creating one drug or a few medicine, and these medicine are targeted as we get increasingly more exact with medication in very individualized therapeutics.

So one drug would possibly solely purpose to deal with 20 folks throughout a scientific trial, possibly 5 folks. It is actually tough to fabricate a drug at scale when there’s not that many individuals which might be going to wind up taking it. So loads of these biotech startups do not have the bandwidth to fabricate the medicine for his or her scientific trials, and even after the drug will get FDA authorized. So that they outsource it. And Catalent has gone all in, on with the ability to make a small amount of those extremely specialised medicine. And this mRNA remedy is a living proof. They invested within the capacity to fabricate mRNA. And now they have a devoted manufacturing line that’s enabling them to turn out to be a topic skilled. So take into consideration the longterm. We now have mRNA as a brand new therapeutic, launched to us by means of COVID-19. However over time there’s going to be many extra mRNA therapies which might be going to return to market.

Catalent could be very properly positioned to seize that progress 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, loads of progress all over the world 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 means of, 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 properly past the pandemic.

After which with Dexcom. Dexcom is reported sturdy progress 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 system. It is a diabetes firm. And they also anticipate to launch that in Europe by the top of the 12 months. This new technology CGM system that they are launching is the dimensions of a nickel. It is like 60% smaller than what’s at present out there and extensively used in the marketplace. So Dexcom is thought for making essentially the most correct CGM system in the marketplace. And we’re actually excited to see a big progress trajectory there as Dexcom additional seems to have extra folks utilizing the CGM system, like folks with kind two diabetes.

After which we’ll simply shortly present you the brand new additions to the index within the quarter. A few fascinating firms right here, Akoya is de facto targeted closely on spatial biology. So that is bringing some neat publicity to spatial biology into the index. It is a expertise that many individuals have heard of subsequent gen sequencing in genomics, which is only a strategy to sequence the DNA. Spatial biology is taken into account the following gen sequencing in that there is a big trajectory for adoption. And what it means is that it principally offers you extra detailed view of a human genome. So in case you have been to match this to say, to illustrate you wished 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 possibly some banana, however you are unsure what number of of every and what the parts and ratios are. However then in case you take that analogy and have a look at say a fruit salad, then you may depend what number of fruits, items there are of all the things in there and the place they’re situated within the bowl.

That analogy form 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 various kinds of most cancers and the place there could be variance and completely different mutations which may even be inflicting most cancers. So actually thrilling stuff there. And we have got, I might go on for ages on these different firms and the cool expertise taking place there. Twist is giving, it is an ideal enabler of artificial biology. Destiny, we will discuss extra about that within the Q&A as properly. So with that I am going to cease and go it alongside to our colleague to speak about THNQ. Zeno, I feel you are on mute.

 

Zeno Mercer: 

Thanks, Nina. All proper. Hey everyone, I am Zeno. I’ll cowl THNQ at the moment, 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 area. Because the index launched in late 2018, we have seen the index double in worth as adoption of those applied sciences develop. After all, 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 area 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 so far 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 provides from a mixture of strategic and monetary sponsors.

Now shifting on to our sub sectors. So six of our 11 sub sectors posted constructive 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 large knowledge and analytics below carried out. Now, it looks like everybody on this planet is concentrated on, and for good purpose, 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 increased demand led to overproduction and subsequent oversupply and diminished costs. This time we imagine that now we have far more secular developments going for the sector, elevated cloud computing, wearables, cell, and 5G. Enterprise AI, autonomous autos, 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 following slide outperformed for the second consecutive quarter up 10%, and up 65% over the previous 12 months. On the extra safety facet, you might need seen issues within the information lately about AI and safety. We have now Palo Alto Networks and Speedy 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 developments within the cyber safety market, which is anticipated to double over the following 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 have now now healthcare, finance, commerce, authorities and infrastructure and extra, all principally 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 facet, you might have firms like Pure Storage, which have been up 29% for the quarter, which continues to see excessive deployment of their business 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 lately launched an business first answer that permits autonomous storage as a code for on-demand storage answer, which might massively velocity up deployment instances. So this could make it even simpler and safe to spend cash on their companies too.

Transferring on to the following slide and subsequent sector, now we have cloud suppliers, which underperformed and we’re down 9% for the quarter. Total combine outcomes as main Chinese language AI firms, resembling Alibaba and Tencent valuations faltered as the general Chinese language market dropped below strain from each political and regulatory threat, resulting in multi-year low valuations. Baidu, one other index member, one of many world’s largest AI firms on the forefront of quite a few improvements throughout autonomous autos, 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 to this point in This autumn the place issues have been largely flat or down worldwide, these Chinese language AI firms are up 10 to fifteen%. On the extra constructive entrance Cloudflare was up 6.5%. Now, for many who do not know, Cloudflare supplies community companies and safety options for web site internet hosting and content material supply, additionally IoT and cloud platforms, and it’s up 40% to this point in This autumn.

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 latest merchandise they launched is to forestall phishing assaults utilizing machine studying. So shifting on to the following slide, thanks. One among our high performing firms I wished to focus on is Atlassian. So Atlassian gained 52% over the third quarter. They’re a Australian-based cloud expertise 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 progress up to now few years, pushed by its breadth of expertise 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 purposes. And they also’re seeing sturdy adoption by giant and small enterprises alike.

Subsequent I might wish 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, they usually maintain the biggest market share amongst its friends with tens of 1000’s of organizations. And they’re a frontrunner 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 progress driver is earlier this 12 months they acquired FedRAMP certification for a number of of their cloud options. That is primarily the seal of approval for expertise and safety for the U.S. authorities. So we will begin seeing increasingly more deployment throughout federal and municipal authorities companies.

Lastly, I might wish 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 standard lending course of by primarily 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 either 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 succeed in over a 100 billion in income subsequent 12 months, as they proceed to realize companions in diversified income streams on this area. For instance, this previous week they partnered with Kentucky’s largest credit score union to assist energy their again finish. One last item I wished to cowl is Aspen Tech. Jeremy talked about we have had a number of takeouts. We have had seven to this point this 12 months, together with Aspen Tech, which noticed a $11 billion takeout by Emerson Electronics this previous week. Now I’ll go it again to Jeremie who will assist wrap issues up.

 

Jeremie Capron:

Thanks, Zeno, thanks, Nina. We will transfer on to the Q&A piece of this name. And I see now we have a number of questions which have already are available in. Please be happy 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 may see the meals and ag sub sector in there. We expect there’s loads of very thrilling improvement round ag expertise and meals and beverage manufacturing, and that the depth of automation on this sector is rising very quickly. And so at the moment the meals and ag sector is simply round 5% of the index, so it is one of many smaller software sectors. The majority of the exercise at the moment 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 firms like, firms that automate the manufacturing traces for meals and beverage. So the GEA Group in Germany that is targeted on the dairy business, they usually do issues like cow milking robots as properly. You will discover firms like Krones, additionally in Germany. Krones is the world chief in bottling equipment. And you will find firms like John Bean that is targeted on the protein market. So automation gear for the meat business. After which, firms like UpHarvest that I touched on early on the decision. That is an organization that is a latest addition to ROBO and that is extremely automated greenhouses. After which, within the personal facet earlier stage firms we’re seeing very thrilling developments. Corporations which might be utilizing facial recognition kind of laptop imaginative and prescient to investigate each plant by rolling over the crops, utilizing a tractor and behind it driving laptop imaginative and prescient gear.

And also you’re in a position to analyze the degrees of hydration, the potential contamination by ailments, the necessity for pesticides. And the outcomes are fairly fascinating. We’re in a position to cut back the usage of pesticides by an element of 10. So some very thrilling developments there. Additionally, on the personal facet we anticipate loads of these firms will finally go public like UpHarvest did earlier this 12 months.

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

 

Zeno Mercer: 

Yeah, I can begin right here. So primarily 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 a number of useful resource sources, we do provide you with our personal form of high down bottoms up approaches to taking a look at completely different issues and alternatives in society. So, taking a look at smaller, you talked about, not likely lined. I imply, whereas that’s vital, whereas components like liquidity and entry and market is vital, we’re taking a look at discovering the perfect in school applied sciences and now we have 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 will do, and the way that adoption will play out, how they’ll seize income within the enterprise mannequin. So yeah, I’d say that principally summarizes my strategy and our strategy on the AI facet.

 

Nina Deka:

After which by way of healthcare, it is truly fairly related throughout the board, throughout our indices. However there, in case you have a look at the personal world, there’s been simply an infinite quantity of funding in healthcare innovation from an early stage to late stage enterprise recurring standpoint. And now we have seen an inflow of latest IPOs, significantly within the healthcare IT area in what we name knowledge analytics or telehealth in our portfolio. However, after which we’re additionally seeing loads of investments through M&A. So the way in which that we do that is we have a look at, I assume, a top-down strategy. We glance throughout the completely 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 loads of completely different locations, similar 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 completely different purposes throughout our 9 sub sectors and of various indications and areas of healthcare. After which by means of there, by means of deep elementary analysis and business evaluation, that is the place we uncover who the gamers are. A variety of them are personal. A variety of them are small, mid cap and plenty of are giant cap. After which what we additionally see by means of M&A is that loads of the businesses wind up getting acquired, typically by firms which might be already in our portfolio. So it is, I feel it is only a broader market degree top-down strategy that helps us seize the completely different dimension firms 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 following one. And really there’s a few questions across the progress orientation of our portfolios, and whether or not they would carry out as properly in a worth market. I feel that is a very reasonable query. And positively on the healthcare tech facet and on the AI facet, these are undoubtedly excessive progress portfolios. And so if we’re in a worth market, you would not anticipate these portfolios to carry out as properly. That may be a truthful remark. I’d simply spotlight that on the ROBO facet nevertheless, there’s loads of worth within the portfolio. Actually, was simply taking a look at my display a couple of minutes in the past, and now we have greater than 20 firms within the ROBO index out of simply over 80 complete members which have a ahead P/E below 17.

So considerably under the market common. And sometimes these firms are extra cyclical in nature. They’re concerned within the manufacturing unit automation world. There are typically extra capital items kinds of companies promoting gear and equipment. A variety of these shares are in Japan, and proper now they’re low cost. And sometimes what you see when now we have a rotation into cyclicals and the worth areas of the market, we see these shares carry out very properly. And in case you return to the long-term efficiency chart of ROBO, you will notice that it performs properly, even in a worth kind market. And I’d spotlight particularly 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 now we have a query round valuations, if we might touch upon valuations for every index? And I am going to begin with ROBO and go it on to Zeno and Nina for HTEC and THNQ. So by way of valuations for ROBO, at the moment the index is buying and selling on a ahead P/E of 29 instances. And that could be a 20% premium to the long-term common, which is simply round 25. So we’re buying and selling at a premium, however it’s additionally very clear that the earnings trajectory could be very exceptional proper now. Within the second quarter we noticed EPS beat by 12% on the median, and EPS progress within the second quarter was 68% 12 months over 12 months. That was the strongest progress 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 meaning we’re already making new highs by way of earnings general in combination for the fund. And we anticipate EPS to develop by greater than 80% within the third quarter, and for the complete 12 months 40% in 2021. So we’re we on a quicker progress trajectory, and that sometimes 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, undoubtedly. So for HTEC we sometimes have a look at, as a result of so most of the firms should not but worthwhile, they’re in a excessive progress state. So we have a look at ahead EV to gross sales as a very good benchmark for valuation. And throughout the quarter, as I discussed, the index returned destructive 5%. So the analysis is definitely low now relative. It is at 6.4 instances for EV gross sales. That compares to about 6.95 instances 12 months over 12 months. So this quarter final 12 months it was nearly seven instances 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, form of just like what Nina mentioned. We have seen some valuation contraction, particularly as we talked about earlier amongst Chinese language firms. So proper now we have got ahead EV gross sales of 9.38. Clearly now we have loads of excessive progress tech firms which have gained loads 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 firms 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 constructive outlook right here for that sector.

 

Jeremie Capron: 

Thanks each. Let’s transfer on. I see now we have some questions associated to particular firms, so possibly we will take these. We have now one on Destiny, that is a brand new member in HTEC. We have now one on Butterfly Networks, possibly 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 should not acquainted, is a finest in school transportable ultrasound system with an AI firm connected to it. Just a bit bit concerning the market on this planet. You’ve got acquired about two third of the world that does not have entry to dependable diagnostic expertise. And this can be a mixture of value, as a result of these units historically value extra, infrastructure and having native consultants and other people in a position to truly deal with and know what they’re doing in these areas. So you might have so many preventable well being outcomes that may be solved by means of ultrasound intervention and diagnostic discovery. So, Butterfly Community can, and the purpose is to primarily present wayman, anyone with the power to make use of this mix of their actually proprietary nice ultrasound with AI and distant entry telehealth for second opinions and stay of steering. And so they proceed so as to add new capabilities, and that is accessible by means of a subscription service.

So you might have each a {hardware} and software program play. And simply, form of in any other case you have acquired, 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 permit large well being alternatives and enhancements to high quality of life. So you have acquired common medication, emergency medication, anesthesiology, hospital. They’ve added vets. So, all of the vets all over the world, with horses, docs, cats, canines. And by way of progress alternatives past that, they’re even taking a look at past bettering their core ultrasound going into wearables, which whereas they have not introduced something particular, given the innovation behind their Butterfly IQ system, we anticipate nothing lower than one thing fairly revolutionary 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 assume in case you have been to match NK to CAR T remedy, possibly many individuals have heard of CAR T remedy. CAR T is one thing that has been in a position to primarily treatment most cancers, however it’s acquired some limitations. With a purpose to deal with someone for utilizing a CAR T remedy it’s worthwhile 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 is very costly. That complete course of prices a pair 100,000 {dollars}.

With Destiny, with pure killer therapeutics, they’re truly extracting stem cells that they will 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, they usually can replicate and make many of those. And it is principally off the shelf they usually can retailer it. After which you may, when you manufacture the NK cell, you may 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’ll be able to simply actually order it and administer the remedy 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 lots 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 happy to direct them to our web site or data@roboglobal.com. I wish to reiterate that we do share a few of our analysis through a biweekly e-newsletter which you could join on the web site, roboglobal.com. And we very a lot sit up for chatting with you once more very quickly. Thanks all, and have an ideal day.