[ad_1]
The ROBO World indices declined in step with world equities in Q3 all by means of the face of most inflation and jumbo price hikes to complete the quarter 42%-50% beneath their all-time highs in 2021. The Robotics & Automation Index (ticker: ROBO) misplaced 7%, the Artificial Intelligence Index (ticker: THNQ) dropped 4%, and the Healthcare Experience & Innovation Index (ticker: HTEC) declined 6%. Valuations have compressed effectively beneath long-term historic averages. On this report, we give consideration to most important tendencies and enormous movers all by our portfolios.
Webinar Transcript:
Jeremie Capron:
Hey there everyone and welcome to ROBO World’s October 2022 investor decide. My determine is Jeremie Capron, I’m the director of study and I’m chatting with you from New York. And with me at current my colleagues Bill Studebaker and Zeno Mercer. We are going to start with a fast reminder of what we do at ROBO World after which we’ll share some concepts about what’s happening all by means of the markets. After which we’ll take a extra in-depth check out each of the three index portfolios, ROBO, THNQ and HTEC. And naturally we’ll be taking your questions, so be at liberty to kind them into the Q and An area on the underside of your current.
So let me start with this quick overview of ROBO World. We’re evaluation and funding advisory firm that’s focused on robotics, AI and healthcare utilized sciences. And we address three predominant index portfolios which is able to possible be tracked by virtually $3 billion in belongings. These are primarily in ETFs. And our first index portfolio is ROBO, that was the first robotics and automation index and it started nearly 9 years beforehand in 2013. And the second is THNQ, T-H-N-Q, that is the artificial intelligence index. And the third one is HTEC, the healthcare know-how and innovation index. And in addition chances are you’ll even see right correct proper right here the annualized returns since inception of each index as of one of the best of September, 2022.
So these portfolios, they combine evaluation with some great benefits of index investing all by means of the ETF wrapper. They’re composed of best at college firms from all by means of the globe. The small, mid and large caps that we evaluation and we score on pretty only a few metrics, and doubtless the best scoring shares make it into the portfolios. Then we rebalance every quarter and the result is portfolios which have a very low overlap with broad equity indices like DSNP 500 or the NASDAQ and completely completely completely different world equity indices.
Okay, so let’s focus on what we’re seeing all by means of the markets. And the elephant all by means of the room right correct proper right here is that the world’s best firms on the forefront of robotics, of AI, of healthcare know-how as represented by the ROBO world indices, they’re now on the lookout for and promoting 40 to 50% beneath their 2021 highs. Constructive, a great deal of shares are on sale acceptable now. World equities are down larger than 25% this yr, nonetheless these normally are sometimes not your frequent shares right correct proper right here. As rapidly as extra, we’re talking regarding the know-how and market leaders. They’re firms which is able to possible be normally very worthwhile and rising tons of earlier than the financial system. Genuinely, as rapidly as we check out their steadiness sheets, we uncover {{{{that a}}}} majority of the companies all by means of the ROBO, the AI and the healthcare tech index, they’ve additional money than debt. And so they additionally even have a optimistic internet cash place.
And additional importantly, quite a few these firms are relative beneficiaries of the current setting. When you think about the problems that we face at current all by means of the world financial system, we now have the labor shortages, we now have rising costs all by the board. The one clear and simple response from enterprise leaders is automation and enterprise leaders and firms are making it a excessive priority. Genuinely, and Bill will come as quickly as additional to that shortly, demand for automation at current is at doc highs and rising and there is extra demand for robots and automation that suppliers can present.
And on the an an equivalent time, this down market in equities, we consider is giving retailers an opportunity to spend cash on these firms at a discount. Genuinely, the three portfolios are literally on the lookout for and promoting significantly beneath historic frequent valuations and we’ll come as quickly as additional to that. So let’s check out robotics and automation first, and for that I am going to maneuver it on to Bill Studebaker.
Bill Studebaker:
Good morning everyone. Thanks for the time and curiosity. Jeremie, thanks for the introduction. Merely to take a look at up on Jeremie’s suggestions, we actually know that the third quarter was a hard interval for retailers. And September was a powerful illustration of merely how troublesome it might presumably be to be focused on the long term horizons, considerably when the market is frequently being tripped up by a confluence of issues and events. And we understand that these are sturdy events. Concurrently Jeremie commented, the down market is giving retailers actually a welcome completely completely different to income from deep reductions and spend cash on firms that we see they’re delivering on the obligatory automation utilized sciences.
And we consider, as Jeremie moreover commented, that this has created an setting, it’s type of a beautiful storm for retailers, to increase publicity to a supercycle for automation and demand for automation utilized sciences, as I am going to comment shortly in extra side, has on no account been larger and the issues which is able to possible be decreasing equity prices that we’re all significantly acquainted with, the labor shortages, the compressed margins, the provision chain bottlenecks and the need to cut as soon as extra working costs are significantly rising the need for adoption. And as we doubtlessly go right correct proper right into a recessionary setting, we predict companies are going to be very wanting to want to spend on effectivity and automation.
As you most likely can see for the quarter, the ROBO index declined about 7%, which is equivalent decline for world equities, which has resulted in valuations which have compressed effectively beneath our historic averages. And the broad weak spot was represented in 10 of our 11 sub sectors that we invested that had confirmed losses. And importantly though, as we look into the fourth quarter earlier, we see a beautiful completely completely different for retailers to sharpen their pencil and add to this, what we consider, is inevitable automation theme. That’s on sale like a substantial amount of the market.
And we see an unlimited discrepancy because of the place stock prices are, stock prices are 40, 50% off their all time highs whatever the sturdy fundamentals of automation that we’ll contact on shortly. And a great deal of of our constituents actually are firing on all cylinders and can’t make ample to satisfy the demand. As you most likely can see right correct proper right here on the valuations, the PE is 12% cheaper than our historic frequent. And I do must underscore that our valuation depends upon PE, many alternative tech exposures are primarily based fully on price of product product sales, and in quite a lot of circumstances are arguably over owned and overvalued. I do must make the comment that decrease than 3% of ROBO is all by means of the S&P 500. So it’s a distinctive publicity that furthermore may very well be very beneath owned and underappreciated by a substantial amount of the market and we predict that would presumably be a probability.
Subsequent slide please. So from an EV to product product sales standpoint, you most likely can see that we’re on the lookout for and promoting pretty close to parity to historic valuations. So ROBO is on the lookout for and promoting spherical 2.7 events EV to product product sales. As rapidly as extra, the context of the place know-how trades, I level out, Adobe merely made a purchase order order order order of an AI asset for 40 events trailing EV to product product sales. So that hopefully affords you some context that I cannot say that we’re hardly overvalued. Considerably, I truly actually really feel our valuation of our portfolio has superior pretty significantly by the years and has develop to be tons of growthier, so that’s type of skewed the valuation of the upside. So I would argue that even at 2.7 events relative to the earlier, our valuation is pretty low price.
And easily as a assemble on to that, what we now have seen right correct proper right here in the marketplace obtainable obtainable out there, we now have had three consecutive quarter declines all by means of the ROBO index and that’s actually type of an unprecedented progress since we launched the index as quickly as additional in 2013. And it’s solely much like the as quickly as additional verify going as quickly as additional to ’08, ’09. And importantly though, earnings estimates, I do know that that’s maybe type of the elephant all by means of the room, that folk suppose the earnings estimates are going to return once more as soon as extra down dramatically. We actually have not seen that however. For 2022 and 2023, earnings estimates have solely been decrease by about one to a few% of the final phrase three months and easily 6% over the sooner yr. And this I truly actually really feel is a reflection of the flexibility and demand for automation utilized sciences and choices.
And actually importantly, the flexibility for ROBO firms to take care of rising costs and supply chain challenges. A lot of these firms have been spherical for quite a lot of years and have had the flexibility set to adapt to and address completely completely completely completely different monetary environments and to have the flexibility to maneuver on and prices. And I truly actually really feel importantly, the earnings estimates have seen really optimistic upgrades over the sooner three and 12 months and diploma to a few 12% product product sales progress for 2022 and about 9% for 2023. Although the market is skeptical that estimates won’t come beneath extra stress, that to this point has been the report card.
Subsequent slide please. So as Jeremy type of alluded to, ROBO is designed to be diversified, it’s designed to be invested in among the many many higher of breed know-how firms globally all by the ecosystem of the know-how. So what makes the robotic or automation work? After which the choices, the place is automation being deployed? Sadly, this drawdown, as all individuals is aware of, has been significantly violent and extreme and has resulted in maybe most likely primarily essentially the most essential drawdown we now have seen. Even when 50% of the portfolio has what we see as a precise price, that being uncovered to industrial automation, logistics automation, healthcare. To not diploma out, as Jeremie alluded to, that roughly spherical 60% of portfolio has an internet cash place and no debt. So these firms are effectively positioned to native local weather the storm, like they did all by Covid.
And this enterprise is importantly historically grown the proper line two to some events that of the market and we anticipate that to proceed. To not diploma out yr to this point, FX has been about an 800 basis diploma headwind and the change all by means of the buck actually has been significantly parabolic and we predict there’s inclined to be a reversion of level out and there would possibly very accurately be a wonderful tailwind as we begin to maneuver into 2023 and former.
By the use of the huge stock strikes, we now have had a pair fortunes to the upside, not ample truly, iRobot was up 57% all by means of the quarter, as a substantial amount of you is susceptible to keep in mind, they are a frontrunner in shopper robotics and they also moreover agreed to be acquired by Amazon in an all cash transaction for 1.7 billion. This does importantly signify the twenty eighth takeout since we launched ROBO as quickly as additional in 2013. And whereas we can’t forecast what the MA setting’s going to look like, a substantial amount of our firms are, as rapidly as extra, leaders of their enterprise. And as asset prices come down, we predict that they really develop to be extra favorable all by means of the eyes of strategic and financial prospects.
Luminar Experience moreover had an sincere change to the upside. They are a frontrunner in lidar know-how for cars and automobiles. The stock was, I truly actually really feel the effectivity was significantly supported by the conviction of insiders. The CEO did purchase upwards of $6 million all by means of the quarter. Nonetheless importantly what’s actually transferring the stock is their enterprise success with bulletins. They launched partnerships with Mercedes and Nissan, which intend to mix their know-how in most of their cars by 2023, or I’m sorry, 2030. So we do anticipate to see extra progress right correct proper right here on the enterprise entrance.
Then inside the case of the sectors that we actually preserve terribly convicted on, one dwelling to current consideration to is industrial automation. And an earlier contact upon that Jeremie moreover did is that industrial automation actually is firing on all cylinders to satisfy demand. And Yaskawa, which is a big industrial robotic producer, merely launched as of late that their orders had been up 34% yr over yr. Fanuc, which is important industrial robotic producer, has been pretty vocal about their backlog, which now may very well be in extra of 1 yr. Importantly, Teradyne, which moreover performs a key place in industrial automation, has remaining quarter talked about their industrial automation progress was up 29% yr over yr. We anticipate that to proceed as rapidly as they announce their outcomes shortly. They’re considered one in all many largest producers of collaborative robots by the use of their purchase of Frequent Robots, which is a Dutch firm. That enterprise has moreover actually been firing on all cylinders. That enterprise remaining quarter seen robotic product product sales really up 30% on a 55% comp.
So enterprise actually stays pretty sturdy and healthful. These asset prices are literally pretty attention-grabbing for retailers to strive. And common, contained in the occasion you check out robotic density, and so that’s attempting on the number of robotic installations per 100 of us, give it some thought or not, the worldwide frequent is just one.2 robots per 100 employees. And so we now have an prolonged approach to go inside the case of the place penetration costs are going. Merely to position that in context, the US has roughly 2.5 robots per 100 employees. China may also be 2.5, nonetheless they’ve grown from 0.5 to 2.5 in 5 years. So pretty wonderful progress there. Japan’s about 4, Germany’s 4 and Korea is 9.
So this all is all by means of the context of a world setting the place world manufacturing employs about 500 million of us globally. So if robots are stealing our jobs, they are not doing a wonderful job of it and we predict there’s essential progress all by means of the years ahead. That’s it for my prepared marks. I suppose I am going to maneuver it on to-
Moderator:
Thanks Bill. Hey Bill, sooner than we alter on, we now have a specific question to ROBO from the viewers spherical why we embrace Nvidia nonetheless not Micron or Intel or STM. Could you communicate to that?
Zeno Mercer:
Optimistic. Whats up there. Hey everyone. Zeno right correct proper right here masking THNQ at current. And okay, would possibly you repeat that question? It was spherical possession?
Moderator:
Constructive. So that they’re asking all by means of the ROBO Index, we embrace Nvidia nonetheless not Micron or Intel or STM. So would possibly you focus on regarding the excellence between ROBO and THNQ and the place these firms would fall?
Zeno Mercer:
Acceptable, okay. I truly actually really feel in all probability the best strategies we check out it is not solely, certain, these are all involved in components of type of modern society, robotics, AI, nonetheless we’re on the lookout for firms which have presumably maybe most likely primarily essentially the most funding or publicity to these areas. And I’m really going to cowl in a video later, nonetheless I would say some components now, at their newest AI day, they’re rigorously invested not solely all by means of the chips nonetheless the software program program program program side of things. And in the interim we take be aware them extra of an AI and robotics play. I level out, they’ve software program program program program significantly for it and we merely have stronger conviction spherical it going forward. Clearly firms like Micron are making big investments and are important to society, nonetheless we’re attempting to get publicity to particular areas and by no means merely make investments typically firms all by means of the realm. I level out, we’re able to cowl extra later as rapidly as I focus on extra about Nvidia for a bit.
Yeah, we’re able to go to the next slide. Reflecting on the quarter, the THNQ index was down 4%, really outperforming world indices and the S&P, and we’re down 47% since November 2021 extreme. So the AI space has been underperforming even whereas fundamentals have been bettering in some methods. And I am going to get to that. From a valuation standpoint, Ford EV product product sales are persevering with downward and they also moreover’re really on the quarter end, they’re at 4.6, which is beneath March 2020 lows. Even whereas adoption progress, digitization and a substantial amount of big tendencies and tailwinds are coming, not solely now nonetheless 2023 and former. And we’ll cowl that. And a variety of the big components that occurred is we had earnings deceleration this yr all the best way through which by means of which correct all the best way right down to 11.2%. So common our firms grew, nonetheless this was down from 27.9% in 2021. Clearly it was a very big yr for earnings.
And the current forecast acceptable now may very well be a stronger rebound as quickly as additional all by means of the low twenties for 2023, 2024. So acceptable now, I level out, this has been a hard yr. Of us have been type of reorganizing and figuring out what strikes they might make, nonetheless certain areas of the financial system are seeing and have big backing for continued funding over the next a great deal of years and quarters. So I truly actually really feel it’s important to suppose and know that AI is turning into an rising share of company authorities spend and furthermore it is an enabler of GDP progress and worth monetary financial monetary financial savings. So there’s every progress components and deflationary components which is able to possible be involved right correct proper right here and we’ll cowl that.
Subsequent slide. Yeah, so we really had, whatever the index being down, we had outperformance, we had 79% beat excessive line expectations and 85% beat earnings. And I truly actually really feel spherical 87% are anticipated to be worthwhile subsequent yr. So contained in the occasion you may be obsessive about these firms, we now have extreme pricing vitality, they’re important avid gamers to the financial system, whether or not or not or not or not it’s funding spend from the Fortune 500 looking for to digitize their merchandise or make new merchandise and even merely uncover price monetary financial monetary financial savings all by present chain, operations, components like that. And even merely using AI as a core product and to increase the product progress, whether or not or not or not or not actual world world merchandise or digital merchandise, choices. So there’s developer operations, cybersecurity, a substantial amount of angles there.
Many firms even have raised steering all by means of the index resembling Samsara, which really raised 3 circumstances this yr no matter their very non-public present chain components. That’s excessive line and bottom line. From big data and analytics, we really seen a standout from firms like Alter X, which is seeing 50% yr over yr progress and 90% gross margins. And no matter everyone being afraid of, oh, what’s going on on to happen with spend, and the place money goes is shifting this yr, I truly actually really feel we’re all seeing that. And Alter X is seeing their largest pipeline in historic earlier for digitization automation of bringing in data and figuring out what to do with it and discovering strategies to streamline capabilities with elevated labor price, inflation.
So these firms current very extreme ROI and that’s the rationalization as rapidly as we’re establishing and reevaluating the index and rebalances, we’re having a look at what firms are enablers acceptable now. And that’s every the infrastructure side and the exact software program program program side which is able to possible be really getting used at current. It’s the provide and demand. And likewise you wouldn’t assemble semi chips, there’s not a set off, and I am going to get to this subsequent, regarding the CHIPS Act, if there weren’t a necessary side coming down the freeway for that. And most of those chips, the chips being produced there aren’t going to be coming on-line until 2025 and former.
So we’re prepared to essentially go to the next slide now. I suppose I already lined the outperformance right correct proper right here, however it was, no matter components all by means of the financial system, it was a very sturdy quarter and we seen pretty sturdy reassuring steering from many areas. I truly actually really feel one in all many essential troubled areas is on shopper, although our shopper index or the patron sub sector and e-commerce had been among the many many most interesting performing this remaining quarter, they’d oversold in Q2.
So contained in the occasion you may be type of on the lookout for 1 / 4, I level out you will have shifts there, nonetheless that’s the rationalization we even have publicity and make allocations of these completely completely completely completely different areas. Going to talk about Semi actual quick, I truly actually really feel considered one in all many largest components that occurred was two components. A, we handed the CHIPS Act and we moreover had US commerce restrictions, Semi effectivity whatever the CHIPS Act being handed, no matter Europe moreover declaring they should double manufacturing of Semi chip efficiency themselves, getting away from Asia manufacturing space, our Semi index was down 12%.
Part of it is falling in lockstep with the financial system and the complete factor else. Part of it is type of overblown fears spherical what’s happening with the China commerce restrictions and likewise spherical shopper, PCs, Cell. Apple launched that they will not improve manufacturing of the iPhone 14. And we now have some publicity there, nonetheless common that’s PC and personal. Do you have to’re talking about cloud, AI, automotive and connectivity, which is the place we really attempt to allocate extra publicity to on that side of things, on the infrastructure side, we’re really seeing sturdy demand and forecast. For instance, Qualcomm, which is anxious in quite a lot of, they’ve I truly actually really feel $7 billion enterprise fashions. They’ve seen their automotive pipeline go from 19 billion to 40 billion in a single quarter. So the inflation low worth act, all these items persons are making, we might not have full EVs however, on the very least all by means of the sense that they are not far and huge.
I level out, contained in the occasion you check out share of cars on the freeway, it’s 0%, 0.001. Nonetheless, intelligent smart cars that require extra processing, you may have acquired purchased EVs, they require extra semiconductor chips and processing connectivity and in addition to you may be seeing an infinite improve in demand spike there. So whereas we’re seeing a oversaturation in that half, we’re seeing big progress. After which there shall be one completely completely different enhance cycle for wearables and components like that, that that’ll come as quickly as additional on-line. Nonetheless it is type of smoothing out the tactic right correct proper right here. And that moreover accommodates components, sensors and laptop computer pc laptop computer imaginative and prescient.
By the use of cloud demand, we’re seeing big pull by the use of nonetheless. Arista, which makes networking switches and software program program program program for these big cloud coronary heart deployments from the huge tech firms and enterprise and others. They outfitted very sturdy steering in 2023 at their remaining decide. So contained in the occasion you are attempting by the use of the noise and seeing what’s an indicator of things to return once more as soon as extra, it’s continued funding on this space. And we now have acquired a great deal of hundred billion buck plus tailwinds coming by the use of 2023 and former. And it couldn’t be extra obvious how important it is than for a lot of who get to the commerce restrictions.
Nonetheless the CHIPS Act, merely to current everyone an occasion of how we check out the infrastructure space, they should make the semiconductors themselves, so you’ll have Nvidia, Intel, Samsung, avid gamers like that. You even have firms like LAMB Evaluation and ASML, which make essential components to that. To make tiny three nanometer components, you need very pricey, very refined gear. I level out, it’s only a few of most likely primarily essentially the most spectacular tech we now have on the planet acceptable now. Each of these models though have quite a lot of years pre-order, there’s a backlog, and they also moreover run $180 million per pop for ASML as an illustration, it’s a Dutch primarily based firm.
As a share of spend, okay, as an illustration there’s a $50 billion Chips Act and an entire bunch of billions coming on-line in manufacturing all by means of the US as an illustration, not even talking regarding the EU, one $17 billion plant in Texas, $10 billion of that is going to semi manufacturing gear. So merely to current you a scale, and I don’t suppose the market’s actually reflecting that, semi’s ineffective, prolonged reside semi, persons are like, “Oh, PC, gaming,” there’s tons of approaching board. I truly actually really feel that’s one subject to recollect for a lot of who’re sitting right correct proper right here obsessive about what’s cosy and what’s really going to get money all by means of the following couple of years.
China restrictions, Nvidia, Nvidia’s had a troublesome yr, gaming’s down after which the China commerce restrictions have come on board. They don’t seem to be set to begin out for a while until subsequent yr, 3Q subsequent yr. And it really leaves them with some wiggle room. So it isn’t principally they can not promote into China, they solely can’t promote particular chips and components. Truly rumors are saying that they’re really getting a great deal of orders and persons are stockpiling acceptable now. So take that as you may. Nonetheless I truly actually really feel ultimately it merely reveals how important these are and that there’s going to be elevated emphasis and funding right correct proper right here.
One completely completely different topic I needed to talk about briefly is the Tesla robotic. That was a pretty big deal for loads of, all by means of the sense that it launched consideration to the world. Elon has that have an effect on. He focused on EVs, he primarily made the EV market. Robots though are already an infinite market, clearly that’s the rationalization you guys are all right correct proper right here is trying to know and take heed to that and from our angle. So what I truly actually really feel goes to happen right correct proper right here is A, shopper robots have very low penetration. Genuinely, it’s primarily null. You do have extra automation in semi and automative and manufacturing, however it is one completely completely different market that really merely will not be being appreciated is the robotic space and AI space with the flexibility to visualise and primarily, they should perform all by means of the digital world to have the flexibility to perform all by means of the bodily world. That’s going to take elevated computation and funding in cloud, AI, connectivity.
So I truly actually really feel that’s the takeaway there. I do probably not must make a projection on when will Tesla robotic be in of us’s properties if it ought to, et cetera. Nonetheless I truly actually really feel it’s merely one subject to recollect.
Yeah. So speaking of latest components, we now have acquired a model new addition. We added CrowdStrike this quarter. So CrowdStrike for plenty of who do not know, is an American cybersecurity firm that was primarily based in 2011. That that they’d their first product in 2013. They’ve been on a roll right correct proper right here. Now we have been watching them for some time and they also moreover’ve actually confirmed resilient. And as rapidly as we’re obsessive about making an addition to an index, we check out fairly just a few components, We check out their market and know-how administration and we moreover check out what are they investing in, have they acquired a pipeline of merchandise which is able to possible be going to proceed to make them pay money for market share and improve their addressable market.
Acceptable now they’ve been rising, their 5 yr progress price is 94% anticipated to hit 1.5 billion this yr and a few.2 billion subsequent yr. So their AI enabled cybersecurity choices are trusted worldwide, with a TAM addressed estimated to be $75 billion and that’s rising to 125 billion with new merchandise. They’ve a 97% retention price and they also moreover turned worthwhile in 2021. So this isn’t only a few progress story. Their EPS is projected to develop 50% over the next a great deal of years. Going as quickly as additional to funding, they’ve 25% of their earnings investing all by means of the R&D and in merges and acquisitions. They’re making smart acquisitions, they’re investing, we’re very assured that they will proceed to be a frontrunner in AI enabled cybersecurity.
At this diploma, I am going to maneuver it on to Jeremie to debate our healthcare index.
Jeremie Capron:
Okay, thanks Zeno. So HTEC is the healthcare know-how innovation index that we launched in 2019. And in the previous few years we now have seen the convergence of robotics, AI and life sciences that has enabled some breakthrough advances. And we consider that healthcare is the one big monetary sector that’s going to be profoundly reworked by know-how over the approaching decade. And so we assemble the HTEC index using an an an equivalent recipe to the ROBO index. Which suggests the index portfolio consists of among the many many most interesting at college firms from all through the globe which is able to possible be reworking the healthcare enterprise all by 90 areas you would possibly even see on this pie chart. So there’s robotics, which is about robots all by means of the working room, all by means of the pharmacy, in hospitals and so forth.
And you have got data analytics, which is about firms using software program program program program to derive insights from the data that we now accumulate spherical victims. The data from medical trials, the data from medical imagery and AI is an rising number of utilized in diagnostics and drug evaluation and automating, or it’s extra about augmenting the work of clinicians, augmenting the tempo and accuracy of a diagnostic. After which you’ll have telehealth, which is about decentralized treatment, like distant doctor affected explicit individual visits that we’re now all acquainted with, however it is moreover about wearable models for the monitoring of glucose ranges or cardiac put together and so forth.
You’ve acquired genomics truly with firms providing the models to decode the genome and firms creating early most cancers detection choices. You’ve acquired firms with gene enhancing know-how and even synthetic biology the place we create synthetic genes. After which lastly you’ll have a bunch of medical and surgical objects like 3D printed implants, you’ll have coronary coronary coronary coronary heart pumps, miniature coronary coronary coronary coronary heart pumps, neurovascular models and so forth. So it’s a pretty pretty only a few basket of presently 78 firms, big and small.
Genuinely, virtually half of the companies all by means of the portfolio are small and mid caps, nonetheless they’ve one ponder frequent, which is know-how and market administration of their respective sectors. And on the next slide you most likely can see that the portfolio carried out very effectively in 2019, 2020 and 2021 sooner than that type of indiscriminate selling primarily decrease in half. And so the HTEC index has now declined 50% from its extreme of February 2021. And all by means of the meantime, the earnings has grown by larger than 30%. So earnings grew by 22% remaining yr. And this yr we’re going to see an extra 12% and subsequent yr we’re having a look at 10% product product sales progress, 2023. So HTEC is now on the lookout for and promoting on 3.9 events forward enterprise price to product product sales. That’s on the median for the basket. And that compares to the acute yr of seven.2 events and the low all by means of the Covid lockdown panic, that was 4 events. So we are literally beneath the Covid lows inside the case of valuations and I truly actually really feel that would presumably be an important diploma to recollect.
So I must contact on quite a lot of of the businesses right correct proper right here so that you just simply get a much bigger sense of what’s all by means of the portfolio. And I am going to start with quite a lot of of the acute performers all by the quarter. You most likely can see Butterfly Neighborhood’s right correct proper right here, that was up over 50% before now three months. So Butterfly’s in our diagnostic sector and it has developed the IQ ultrasound decision, that’s an ultrasound system that is 80% cheaper than commonplace models. It’s small, it really works with smartphones and tablets and has a software program program program program platform that is subscription primarily based. So that they’re rising entry to ultrasound primarily based evaluation dramatically. And it’s rising very fast, about 30% per yr, with margins above 50% on the gross stage. So Butterfly has $300 million all by means of the monetary establishment, so a considerable quantity of room to proceed to scale and ultimately we predict it’s a very maybe acquisition aim.
After which Penumbra right correct proper right here, Penumbra is a corporation in our medical machine sector. They’ve developed very revolutionary surgical objects for neuro and vascular conditions. So it’s about stroke remedy and eradicating clots and thrombectomy and coiling strategies. And Penumbra’s tech is superior to the standard stent method, in order that they’re moreover rising fast, like 15, 20% a yr. And they also even have elevated than anticipated margins as rapidly as they reported and they also moreover’re talking about accelerating progress and procedures into the remainder of the yr. They’re making aggressive constructive components. Moreover they’ve fairly quite a lot of merchandise rising over the next 18 months.
And AxoGen, you most likely can see right correct proper right here, which was up larger than 40%, that’s in a regenerative treatment sector. AxoGen has developed a solution to revive the bodily hurt to nerves, peripheral nerves. And so they additionally furthermore’re able to revive feeling and effectivity of nerves. Principally it’s a nerve graft and it’s the one off the shelf human nerve allograph contained in the market. And AxoGen moreover had elevated than anticipated earnings remaining quarter. And the administration commented that they anticipate the product product sales progress to return to mid youngsters by one of the best of the yr.
And finally, I needed to the contact a bit bit on genomics and precision treatment, which collectively account for only a few quarter of the portfolio. And in addition chances are you’ll even see on this slide some examples of firms in HTEC, quite a lot of of the know-how and market leaders which is able to possible be actually powering the genomics enterprise. And we predict genomics is completely a revolution and it’s happening now. It’s a revolution on account of genomics permits a extraordinarily new method to treatment and the early detection of sickness. It is not solely hereditary sickness however moreover persistent sickness like most cancers. And because it moreover permits custom-made treatment, custom-made treatment which suggests individualized treatment versus the current model of big pharma the place you’ll have a one dimension matches all type of molecule that price billions of {{{{dollars}}}} to ship to market. Right correct proper right here we’re talking about therapies which is able to possible be tailored to the individual.
And the rationale why this revolution is happening now may very well be on account of we now have fairly priced gene sequencing know-how and the value of sequencing the human genome is declined dramatically from billions of {{{{dollars}}}} with the first human genome enterprise a very very very long time beforehand to now beneath $1000. And if there’s one firm that’s been most important the worth inside the case of driving down the value of gene sequencing, that is Illumina, which is the market chief. They’ve larger than 20,000 machines put in worldwide. They’ve larger than 75% market share globally. And remaining yr they grew earnings by 40%. And about two weeks beforehand they launched the model new NovaSeq X, which is the model new sequencing platform that may take sequencing costs down by larger than half to only some hundred {{{{dollars}}}}. And the final phrase time we seen such an infinite price decline, that drove fivefold improve in the marketplace obtainable obtainable out there dimension for genomic sequencing.
And that’s what permits genomics testing. And I mentioned the early detection of the illnesses like most cancers. So Natera as an illustration, is the market chief in prenatal DNA testing. They’ve a non-invasive verify for abnormalities and Natera is now pushing into most cancers screening and implant rejection testing as effectively. Veracyte, that’s one completely completely different firm that’s reworking the diagnostic of most cancers using DNA know-how. They’re working in thyroid and lungs and breast most cancers testing. They’re rising the accuracy of diagnostic and avoiding pointless surgical procedures for victims.
And I moreover highlight Twist Bioscience right correct proper right here. Twist is the chief in DNA writing. So it’s the synthesis of genes which they do with a silicon chip to manufacture huge number of synthetic DNA at a low price. They now have 1000’s of shoppers along with pharma firms, along with evaluation amenities, however moreover industrial firms, chemical firms, agricultural firms.
And finally I must contact on Alnylam. Alnylam is an atmosphere pleasant occasion of precision treatment and individualized treatment. They pioneered the RNA interference therapeutics, we decide that RNAI. And they also moreover merely obtained their fifth approval in decrease than 4 years for the remedy of polyneuropathy sickness normally known as ATTR. And this remedy that they’re rising with would possibly attain billions of {{{{dollars}}}} in product product sales. So for a lot of who study that to the market cap of Alnylam at current, there’s I truly actually really feel attention-grabbing discrepancy.
So in full there are 18 firms in our genomics and precision treatment half and they also moreover account for spherical 25% of the HTEC portfolio. And I hope you understand that there our portfolio growing course of right correct proper right here is admittedly about diversification, providing publicity not solely to small areas like genomics, precision treatment, nonetheless to all areas of the healthcare enterprise the place know-how is making a distinction.
All acceptable, so I am going to pause right correct proper right here. I truly actually really feel we now have lined a great deal of flooring, I truly must take quite a lot of of your questions and I see we now have a question about earnings trajectory for our portfolios. What is the anticipated earnings progress for this yr and subsequent? And I truly actually really feel we’re prepared to start with ROBO. I am going to the contact upon ROBO after which Bill and Zeno can contact upon the selection portfolios. Nonetheless primarily we predict we’ll shut 2022 with about 15% EPS progress for ROBO. So remaining yr we had larger than 40% EPS progress. This yr we’re nonetheless having a look at 15, which is significantly ahead of what you’d anticipate for the S&P 500, considerably contained in the occasion you exclude the flexibility sector from the S&P 500. We’re primarily having a look at a compression in EPS for this yr for the broad market. For ROBO, it’s 15%. And for subsequent yr, we’re having a look at regarding the an an equivalent, so 15 to 17% is the anticipated EPS for ROBO collectively for subsequent yr. Zeno, do it’s essential to contact upon AI?
Zeno Mercer:
Constructive, Whats up there. Yeah, so inside the case of EPS progress for the THNQ index and its members, I am going to type of break up it into software program program program and corporations and the infrastructure half. Infrastructure has been a bit smoother this yr and we seen 29% EPS progress in 2021, this yr we now have seen and projecting for the entire yr, 22%. So a slight pull down. On the flip side on software program program program and corporations, we seen 29% remaining yr and 7.9% this yr, with eCommerce and shopper being a very powerful laggards. Nonetheless that’s anticipated to rebound all by means of the following yr respectively, shopper and e-commerce to 25% and 64%.
And I truly actually really feel attempting 2023 and former, the projections are having a look at 11.6 this yr. Frequent THNQ index is looking for to get as quickly as additional into the twenties progress for EPS, so 20.4 after which even larger clip in 2024 and former. I truly actually really feel quite a lot of of the standouts inside that would presumably be neighborhood and security, which is rising at 49% this yr and anticipated to nonetheless preserve elevated twenties, low thirties subsequent yr. So that you just simply’re seeing some rebound in some areas and others are merely going to see continued energy for EPS.
Bill Studebaker:
Jeremie, merely to fall on to your suggestions, maybe nearly revenues for ROBO, I truly actually really feel importantly, that’s type of the elephant all by means of the room, everyone thinks there’s going to be a reasonably dramatic low worth in estimates. Clearly we now have not seen that happen. That may very well be a risk. Revenue progress ROBO is certainly anticipated to be about 13% this yr and subsequent yr a bit over 8%, which is in step with its historic averages. So even when there’s stress from the broader markets, we do anticipate our indices to normally develop two to some events to that of the market, which historically they’ve. So we really truly actually really feel pretty good regarding the place these companies are positioned as we go into 2023 and former.
Jeremie Capron:
Okay, thanks Bill and Zeno. And I see we now have a question about potential ESG components with the genome oriented firms, significantly governance factors. So right correct proper right here at ROBO World, we take ESG very severely. We launched our ESG security in 2017, so occurring 5 years now. And we now have improved the security persistently by the years, primarily given the pool that we had from quite a lot of of our European retailers. And so the security at current may be very full and yow will uncover all of the small print on the net web site and it’s actually focused on excluding firms that fail certain necessities that we now have established in step with the Febelfin necessities over in Europe. It’s considered one in all many strictest necessities. So we check out environmental effectivity, governance and social components truly. We use our private inside evaluation to guage every firm that’s in our funding universe, nonetheless we moreover use exterior help from preserve analytics that helps us flag any potential components or controversies as they arrive up.
Now inside the case of question all by means of the genome, I truly actually really feel it’s an dwelling the place we’re seeing a great deal of debate, whereas is not any debate is spherical using genomics for early detection of sickness on account of the thought right correct proper right here is that you will select up a sickness sooner than it turns into an infinite draw once more inside the case of your performance to treatment, truly, and your probability of survival, however moreover inside the case of the value to the healthcare system. And so there look like unanimous view all by the enterprise and security makers spherical the truth that genomics in diagnostics is a no brainer. And so we don’t anticipate any components there. The place some components would possibly doubtlessly come up I truly actually really feel is spherical gene enhancing on account of right correct proper right here we’re making modifications into the human DNA. In quite a lot of circumstances we’re making modifications into cells so that it’d most likely produce particular proteins and proteins that may help battle in path of a sickness.
And it is nonetheless very early days. Inside the current day there is not a FDA accepted gene enhancing primarily based treatment. Nonetheless in 2020 we seen the first dosing of a human affected explicit individual with such an method and we had some fairly promising outcomes with that and that’s the rationalization you may have acquired seen the gene enhancing shares perform barely accurately in 2020 and first half of ’21. Now they’ve come down a good way, nonetheless I truly actually really feel that’s the place we now should pay a bit extra consideration.
And the final phrase comment I would make spherical that is that clearly we now have seen a change all by means of the trajectory on the FDA inside the case of how briskly they’ve been approving gene therapies and cell therapies. So for a extraordinarily very very very long time until I might say spherical 2019 or so, there was reluctance by the FDA to fast monitor this evaluation. Nonetheless at current it has been a clear acceleration and whereas there’s solely a handful of gene and cell therapies accepted in the marketplace obtainable obtainable out there at current, there’s a backlog of a great deal of a complete bunch of those presently in medical trials. And so we anticipate the raft of approvals over the next a great deal of years.
So I am going to stop right correct proper right here as rapidly as extra, for a lot of who must ship up any questions, please kind them into the Q and An area. There’s a question regarding the autonomous system, sub sector, I truly actually really feel Bill, it is attainable you may must take that. It’s presently at 0%, was significantly larger than that, Bill, it’s essential to give some coloration.
Bill Studebaker:
Yeah, that’s acceptable, it is 0% acceptable now. And we did have one constituent in there, which was iRobot, clearly taken out. And just because a corporation is way from an index, we don’t mechanically merely put one take into consideration, as Jeremie talked about all by means of the earlier part of the presentation, we’re looking for to seek out out firms that we predict are leaders of their enterprise, firms which have a technological mode spherical their enterprise, have dominant market shares. So that’s a extraordinarily important requirements for what we’re on the lookout for.
And we do anticipate the patron sector to begin to evolve. Clearly we’re pretty obsessive about Tesla’s ambitions right correct proper right here and I truly actually really feel as the worth elements come down, on account of the use circumstances broaden, I truly actually really feel we’ll see a pure evolution all by means of the patron sector, nonetheless we now have not had a great deal of progress there however. With regard to your question, I suppose you had been commenting about Group Gorge and one completely completely different entity in Spain. As rapidly as extra, I truly actually really feel the important attribute about what we’re attempting to do at ROBO is put in leaders all by means of the enterprise. Whereas these firms might want some ambitions in robotics, they’re clearly not getting there however. Group Gorge in France significantly, not solely would we question their market share in technological administration, there is a liquidity downside for companies to go in our index, they should have a minimal market cap and minimal liquidity per day. And every of those firms would fail these screens. So I don’t, Jeremie, one different concepts, nonetheless that’s.
Jeremie Capron:
Bill, there’s one completely completely different question about FX attribution for ROBO yr to this point. I do know you touched on that earlier. Do it’s essential to repeat that?
Bill Studebaker:
Yeah, clearly it has been an infinite headwind. It has been spherical 800 basis elements since we launched yr to this point, it’s nearly undoubtedly about 12, 1300 basis elements since we launched in 2013. So we now have really absorbed that fairly effectively, we actually would hope that that will develop to be a tailwind. There have been years the place FX has been a tailwind and whereas we can’t anticipate that, we actually don’t hedge for it. And we predict over time there is a reversion in level out that normally happens in abroad commerce markets. And supplied that in all probability the best strategies the index is constructed, we’re attempting to seek out out firms that we’re indifferent to the place they’re located. It just so happens about 45% of our index is in North America and about 55% internationally. And as rapidly as extra, essential attribute for us is defining who the market leaders are, enterprise leaders, know-how leaders, and we’re indifferent to what we space they’re in.
Jeremie Capron:
Okay. Now we have now one remaining question regarding the turnover that we see all by means of the index. I am going to take that. So primarily the turnover comes primarily from the quarterly rebalancing. The index itself is pretty safe inside the case of the constituents. Now truly the weightings can change on the margin on account of the scoring evolves, so we score every firm in our evaluation universe and the score drives a legibility into the portfolio and to some extent the place dimension.
Scores evolve each time the evaluation crew interacts with the company or there’s a company movement, there’s new particulars about market administration or know-how administration. Moreover the earnings publicity to the problems that we’re going after, the scores will change, nonetheless the foremost driver of turnover is admittedly the rebalance when every quarter we return to that score pushed weighting. And so that drives about 25 to 35% turnover in a typical yr, so 4 rebalances per yr. Nonetheless the modifications inside the case of constituents actually normally are sometimes not that essential. Genuinely, every quarter you’ll normally see one or two new inclusions or exclusions on the basket of about 80 firms. That’s the place the turnover comes from.
Zeno Mercer:
I’m going so as in order so as to add one subject to the THNQ index actual quick. Contemplating by the use of THNQ, we now have 71 index members and this earlier quarter we had 4 takeouts, one addition. Ultimate yr we had 5 or 6 takeouts from M&A alone. And considered one in all many takeouts was iRobot, which was moreover all by means of the THNQ index. There’s not that tons of overlap, nonetheless that was one, it was in AI and ROBO play. So I merely wished in order so as in order so as to add that we’re making strikes there. And I truly actually really feel what we now have considered fairly a bit presently is just because your full market is down, we’re attempting to substantiate we seize the companies which is able to possible be sturdy and by no means merely following in tandem, nonetheless we’ll make it potential for they might develop market share, have invested exactly, have resilient administration going forward and to the next quarter and former. So. Yeah.
Jeremie Capron:
All acceptable. Effectively, I truly actually really feel we’re occurring the hour, so I must thank all individuals for turning right into a member of us at current and remind you it is attainable you may be part of a biweekly e-newsletter on the net web site roboglobal.com, the place we share quite a lot of of our evaluation and insights into firms and sectors, robotics, AI, and healthcare know-how. And we very tons of watch for chatting with you as rapidly as extra sooner. Thanks.
[ad_2]