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HomeRoboticsQ3 2021 In Assessment: ROBO World Innovation Indices

Q3 2021 In Assessment: ROBO World Innovation Indices

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

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Webinar Transcript:

Jeremie Capron:

Good day, 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 present, two of our analysts from the analysis crew, Nina Deka, and Zeno Mercer. So right here is our agenda. We are going to assessment or three know-how innovation portfolios, that’s ROBO, HTEC, and THNQ. And we will likely be taking your questions, so please be happy to sort them into the Q&A field on the backside.

And earlier than that, let me kick off with a short abstract of what we do right here at ROBO World. We’re a analysis and funding advisory firm that is centered on robotics, AI and healthcare applied sciences. And we’re the creators of research-driven index portfolios which might be designed to profit from these mega traits. At present 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 Expertise & Innovation Index. Our methods are primarily based on a research-driven method. And we mix that with the advantages of index investing and the ETF wrapper. So the portfolios are composed of finest at school firms from world wide. We’ve got small, mid, massive caps. They’re kind of equal weighted and so they’re rebalanced quarterly. So these portfolios have a really excessive energetic share. Meaning a low overlap with fairness indices just like the S&P500 or world fairness indices.

And we began with ROBO, which covers all the robotics and automation worth chain, and the bubbles that you may see round it right here, they symbolize the sub sectors of focus, and we’ll be speaking about that at present. So we’ve key areas of software, like manufacturing facility automation, like logistics and warehouses, like healthcare, meals and agriculture, and so forth. And in addition the enabling applied sciences that make robots and autonomous methods potential, like sensing, like computing. And prior to now three years we began two further index portfolios round areas that basically stand out by way of the potential for disruptive affect. THNQ on the left-hand facet on synthetic intelligence, and HTEC on healthcare know-how and innovation on the appropriate hand facet. And they’re designed utilizing an analogous recipe to ROBO by way of the sub sector method and the research-driven number of finest at school firms.

So let’s discuss returns. This quarter, within the third quarter of 2021 world equities declined simply over 1%, and we noticed marginal good points within the U.S. that have been offset by declines in rising markets and a major sell-off in China specifically. We had a really sturdy incomes season early within the quarter and a run-up into August, however then progress and inflation issues led to declines in September. For those who take a look at the desk right here, you’ll be able to see two of the three ROBO World indices outperformed world equities, ROBO and HTEC declined a little bit bit, whereas THNQ was down, whereas HTEC was down greater than 5%.

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

Now, let me make just a few feedback in the marketplace and our outlook. First, I would prefer to say that our view that 2021 can be a increase yr has largely performed out and the worldwide financial rebound continues to take care of important momentum. We’re not too fearful concerning the current 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 if you happen to take a step again, we’re nonetheless taking a look at a a lot quicker restoration than after prior world 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 may be a truthful concern as a result of to date policymakers world wide have remained surprisingly supportive of large fiscal and financial stimulus.

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

And in addition the alternatives within the close to time period as a result of the pandemic has clearly accelerated the adoption of those applied sciences. Final yr we mentioned that the digitalization of the economic system had been turbocharged, nicely, this continues very sturdy in 2021. Companies all world wide are striving to digitize, to automate, to extend effectivity and adapt to speedy modifications by way of what shoppers anticipate. So if you happen to take a look at the ROBO, HTEC and THNQ methods, they’re particularly centered on know-how disruptors which might be gaining share on this setting.

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

On this slide you’ll be able to see three quarters into 2021 we’re taking a look at one other file yr for mergers and acquisitions, for enterprise funding. We’ve got a file variety of start of unicorns. We’ve got huge IPOs, and by way of M&A you’ll be able to see right here a few of our index portfolio members which have acquired a takeout provide this yr alone. So these are firms which might be a part of our portfolios receiving a takeout bid, and usually seeing a share value increase in consequence.

Now, let’s discuss ROBO, after which I would move it on to my colleagues to debate HTEC and THNQ. ROBO is a research-driven index of the perfect at school robotics and automation firms from world wide. And on that subsequent slide you’ll be able to see that it has outperformed the World Fairness Index over time, together with prior to now three years and 5 years, however it’s a little behind to date in 2021. ROBO was down slightly below 1% within the fourth quarter, after rising 8% within the first half, and 44% final yr. So we’ll name {that a} consolidation prior to now studies.

Now taking a look at returns by sector, you’ll be able to see right here on the pie chart on the left facet, the 11 sub-sectors of focus for ROBO, and that’s protecting all the worth chain, from the core applied sciences that make automated methods 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 good points, and the perfect performing sectors have been on the prime of the tables right here on the appropriate 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 may discover firms like PTC and Decile Programs over in Europe or Autodesk. They usually 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 probably the greatest performing shares within the quarter after agreeing a $1.5 billion provide to go personal. So we noticed copying the inventory in the direction of the top of the opposite quarter.

Manufacturing facility automation shares. I need to contact on that as a result of they have been introduced round 40% of the index by weight. They have been combined within the quarter. They are typically extra cyclical and delicate to modifications within the financial outlook. However we consider that the cyclical restoration in manufacturing facility automation is de facto in full swing by now. We have entered the fifth quarter of enhancements. And traditionally the upswings have been a sequence of 10 to 14 quarters on common. So we predict manufacturing facility automation earnings will proceed to go up and they’re going to in all probability attain a brand new excessive in 2022 subsequent yr. Now, by way of the under-performers, you’ll be able to see on the backside of the desk right here that 3D printing had a fairly tough quarter. It was down greater than 22%. However you’ll be able to see subsequent to that 22% quantity right here that over the previous 12 month the sector continues 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 subsequent slide, I need to contact on 3D Programs. That is a supplier of 3D content material to print options, so 3D printers, but in addition the providers 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. They usually’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 an especially sturdy 280% plus acquire within the first half of the yr. These firms have made very important progress by way of its restructuring plan that they introduced in the summertime of final yr. It is exhibiting an acceleration within the prime line progress, it is exhibiting increasing margins.

And most not too long ago they spend $180 million to amass an organization known as Oqton that has a cloud-based platform for manufacturing working methods. So you’ll be able to see 3D Programs can be shifting aggressively in the direction of a software program enterprise mannequin. Now, let’s discuss a number of the prime 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 pc imaginative and prescient capabilities which might be gaining important traction with main gamers in video safety. So these guys use Ambarella’s know-how for facial recognition, for conduct analytics. They do issues like intrusion detection and so forth. And in addition in automotive the place the pc imaginative and prescient know-how is used for superior driver help and autonomous driving.

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

And this presents additionally attracted senior leaders of the enterprise. Present chief, the CEOs of the businesses are supporting it. So we predict HollySys may be very seemingly 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 slightly below half a billion {dollars} in a merger with no danger capital. And what AppHarvest does is that they construct and so they function greenhouses which might be extremely automated, very water environment friendly. And their aim is to develop vegetables and fruit utilizing a really native provide chain, and lots of automation and AI. They’ve plans to run 5 services by the top of the yr. And they’re going to have 12 farms by 2025. They’re going to be rising largely tomatoes and leafy greens.

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


Nina Deka:

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

And so I simply needed to point out you within the subsequent slide, while you take a look at the sub sector breakdown, we give attention to a really diversified record of sub sectors. We have got 9 totally different sub sectors right here that we give attention to. And these are the areas in healthcare that we consider symbolize essentially the most disruption over the subsequent decade. The businesses which might be market leaders, know-how leaders in these areas, akin to medical devices, diagnostics, genomics, telehealth. We consider that over the long term there’s lots of disruption that we will be seeing, and we’re solely simply at first. For those who take a look at the appropriate facet of this slide, we present the sub-sector returns. And as you’ll be able to see, let’s begin with type of the wants enchancment class. The telehealth, it returned damaging 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, and so they have lots of upward trajectory for progress as increasingly 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 providers capabilities. For instance, go additional into telemedicine providers, like physician affected person visits, in addition to offering digital well being platforms to hospital methods in China. So, we anticipate to see lots of progress on this sub sector over time. And these are simply very early days. Teladoc is one other world market chief on this area. Teladoc reported earnings final quarter, the place they indicated that their telemedicine visits have been up 28% yr to yr. 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 keep in mind, yr over yr progress in telemedicine is fairly important, as a result of second quarter final yr was the peak of the pandemic when nobody might see a physician in-person. So, for the corporate to develop a 28% over final yr 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 relating to hospital integrations and physician to physician communication, gadget to physician, gadget to affected person, there’s nonetheless a lot extra integration that is going to be coming tele-health. So keep tuned there. After which perhaps we’ll transition to one of many out performers, course of automation. Course of automation sub sector features a bunch of firms like Catalent as proven right here on this slide. T Can is one other one Thermo Fisher Scientific. Once we consider course of automation in healthcare, we take into consideration the businesses which might be enabling different healthcare innovators to do what they do finest. For instance, an estimated one-third or 37% of all medication which might be manufactured are literally outsourced to different firms, generally known as contract growth manufacturing organizations.

And an estimated two thirds of all medical trials are additionally outsourced to firms like IQVIA for instance. And so right here we’ll dig a little bit 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 really 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 tender gel. Many individuals are accustomed to taking tender gels versus the powder-based oral medication. So Catalent is an organization that basically has centered 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 lots of biotech investing exercise. Lots of IPOs, lots of startups, lots of firms which might be creating one drug or a few medication, and these medication are centered as we get increasingly exact with medication in very individualized therapeutics.

So one drug would possibly solely goal to deal with 20 individuals throughout a medical trial, perhaps 5 individuals. 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 lots of these biotech startups haven’t got the bandwidth to fabricate the medication for his or her medical trials, and even after the drug will get FDA accepted. In order that they outsource it. And Catalent has gone all in, on having the ability to make a small amount of those extremely specialised medication. And this mRNA remedy is a living proof. They invested within the potential to fabricate mRNA. And now they have a devoted manufacturing line that’s enabling them to turn out to be a subject skilled. So take into consideration the longterm. We now have mRNA as a brand new therapeutic, launched to us via COVID-19. However over time there’s going to be many extra mRNA therapies which might be going to return to market.

Catalent may be very nicely 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, lots of progress world wide 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 via, and Moderna has a really wealthy pipeline. Their progressing trials for a virus known 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 nicely past the pandemic.

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

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

That analogy sort of offers you an instance of how one can actually take 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 totally different mutations that may even be inflicting most cancers. So actually thrilling stuff there. And we have got, I might go on for ages on these different firms and the cool know-how 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 nicely. So with that I am going to cease and move 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 will cowl THNQ at present, 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. In fact, over the previous yr we noticed the speedy digitalization of almost every thing 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 yr, we had a 67% acquire in 2020. The THNQ index was up 7.4% yr thus far on the finish of the third quarter, barely outperforming world equities for a 0.7% loss for the quarter. This yr alone the THNQ index has had seven takeout presents 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 providers and enterprise processes. These have been main the best way whereas cloud suppliers, healthcare and massive information and analytics below carried out. Now, it looks like everybody on the planet is concentrated on, and for good cause, the significance of semiconductors and provide chain points that proceed to be mirrored in auto electronics, almost every thing now, as demand skyrockets. And former cycles is greater demand led to overproduction and subsequent oversupply and diminished costs. This time we consider that we’ve far more secular traits going for the sector, elevated cloud computing, wearables, cell, and 5G. Enterprise AI, autonomous autos, IoT distant work, want I’m going on? And naturally, blockchain, all creating demand up and down the worth chain.

Community and safety, shifting on to the subsequent slide outperformed for the second consecutive quarter up 10%, and up 65% over the previous 12 months. On the extra safety facet, you may need seen issues within the information not too long ago about AI and safety. We’ve got Palo Alto Networks and Speedy set in main the best way up 29% in 19% respectively. They have been each suppliers of superior cybersecurity options. And we have been seeing a number of secular traits within the cyber safety market, which is predicted to double over the subsequent 5 years with spend anticipated to develop greater than $200 billion. This is because of elevated cyber safe assaults or refined assaults and better stakes. We’ve got 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 providers.

On the extra community facet, you will have firms like Pure Storage, which have been up 29% for the quarter, which continues to see excessive deployment of their trade main scalable cloud storage options, offering extra autonomus and quicker deployment for purchasers who proceed to see elevated span round AI and cloud structure. Of be aware, Pure Storage not too long ago launched an trade first resolution that enables autonomous storage as a code for on-demand storage resolution, which may massively pace up deployment instances. So this could make it even simpler and safe to spend cash on their providers too.

Shifting on to the subsequent slide and subsequent sector, we’ve cloud suppliers, which underperformed and we’re down 9% for the quarter. General combine outcomes as main Chinese language AI firms, akin to Alibaba and Tencent valuations faltered as the general Chinese language market dropped below stress from each political and regulatory danger, 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 date in This fall 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 individuals who do not know, Cloudflare gives community providers and safety options for web site internet hosting and content material supply, additionally IoT and cloud platforms, and it’s up 40% to date in This fall.

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

Subsequent I would prefer to circle again to Palo Alto Networks, one other sturdy performer for the quarter, which is up 29%. So Palo Alto Networks is the worldwide cybersecurity chief with each {hardware} and software program options, using proprietary cybersecurity synthetic intelligence, and so they maintain the biggest market share amongst its friends with tens of hundreds 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 yr they acquired FedRAMP certification for a number of of their cloud options. That is primarily the seal of approval for know-how and safety for the U.S. authorities. So we will begin seeing increasingly deployment throughout federal and municipal authorities companies.

Lastly, I would prefer to cowl a brand new member highlight. After 4 new additions final quarter, we simply had one this quarter in our enterprise course of sub sector. Upstart Holdings is an AI-empowered lending platform that disrupts the 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 achieve over a 100 billion in income subsequent yr, as they proceed to achieve companions in diversified income streams on this area. For example, this previous week they partnered with Kentucky’s largest credit score union to assist energy their again finish. One very last thing I needed to cowl is Aspen Tech. Jeremy talked about we have had a number of takeouts. We have had seven to date this yr, together with Aspen Tech, which noticed a $11 billion takeout by Emerson Electronics this previous week. Now I’ll move it again to Jeremie who will assist wrap issues up.


Jeremie Capron:

Thanks, Zeno, thanks, Nina. We’ll transfer on to the Q&A piece of this name. And I see we’ve just a few 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. Brief reply is sure. If we will return to this slide that exhibits the ROBO sub sectors, you’ll be able to see the meals and ag sub sector in there. We expect there’s lots of very thrilling growth round ag know-how and meals and beverage manufacturing, and that the depth of automation on this sector is rising very quickly. And so at present 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 present continues 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 strains for meals and beverage. So the GEA Group in Germany that is centered on the dairy trade, and so they do issues like cow milking robots as nicely. You may 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 centered on the protein market. So automation tools for the meat trade. After which, firms like UpHarvest that I touched on early on the decision. That is an organization that is a current addition to ROBO and that is extremely automated greenhouses. After which, within the personal facet earlier stage firms we’re seeing very thrilling developments. Corporations which might be utilizing facial recognition sort of pc imaginative and prescient to investigate every plant by rolling over the crops, utilizing a tractor and behind it driving pc imaginative and prescient tools.

And also you’re capable of analyze the degrees of hydration, the potential contamination by ailments, the necessity for pesticides. And the outcomes are fairly fascinating. We’re capable of scale back using pesticides by an element of 10. So some very thrilling developments there. Additionally, on the personal facet we anticipate lots of these firms will ultimately go public like UpHarvest did earlier this yr.

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


Zeno Mercer: 

Yeah, I can begin right here. So primarily the best way we go about that is, we actually take a holistic take 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 sort of prime down bottoms up approaches to taking a look at totally different issues and alternatives in society. So, taking a look at smaller, you talked about, probably not coated. 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 at school applied sciences and we’ve our personal proprietary scoring system. We actually take a deep take a look at the groups, the innovation issue behind these applied sciences and what they’ll do, and the way that adoption will play out, how they are going to seize income within the enterprise mannequin. So yeah, I might say that principally summarizes my method and our method on the AI facet.


Nina Deka:

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

There’s lots of totally different locations, identical inside robotics. There’s going to be give attention to surgical robotics. There’s additionally robotics used within the pharmacy. So we take a look at the totally different purposes throughout our 9 sub sectors and of various indications and areas of healthcare. After which via there, via deep elementary analysis and trade evaluation, that is the place we uncover who the gamers are. Lots of them are personal. Lots of them are small, mid cap and plenty of are massive cap. After which what we additionally see via M&A is that lots 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 stage top-down method that helps us seize the totally different measurement firms that we then consider with our proprietary scoring system to find out whether or not or not that they’d be an excellent match into our index. Hope that solutions your query?


Jeremie Capron:

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

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

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

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


Nina Deka:

Yeah, positively. So for HTEC we usually take a look at, as a result of so lots of the firms are usually not but worthwhile, they’re in a excessive progress state. So we take a look at ahead EV to gross sales as an excellent benchmark for valuation. And throughout the quarter, as I discussed, the index returned damaging 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 yr over yr. So this quarter final yr 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 look like a pleasant entry level for HTEC.


Zeno Mercer:

And for THNQ, sort 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 we’ve lots of excessive progress tech firms which have gained lots 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 suppose that from a valuation perspective and alternative perspective that earnings are going to proceed to develop. We’ll 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 we’ve some questions associated to particular firms, so perhaps we will take these. We’ve got one on Destiny, that is a brand new member in HTEC. We’ve got one on Butterfly Networks, perhaps Zeno, you can begin on Butterfly Networks, after which Nina, can you are taking Destiny?


Nina Deka: 



Zeno Mercer:

Certain. So Butterfly Community for individuals who are usually not acquainted, is a finest at school moveable ultrasound gadget with an AI firm hooked up to it. Just a bit bit concerning the market on the planet. You have acquired about two third of the world that does not have entry to dependable diagnostic know-how. And this can be a mixture of price, as a result of these units historically price extra, infrastructure and having native consultants and folks capable of really deal with and know what they’re doing in these areas. So you will have so many preventable well being outcomes that may be solved via ultrasound intervention and diagnostic discovery. So, Butterfly Community can, and the aim 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 reside of steering. They usually proceed so as to add new capabilities, and that is accessible via a subscription service.

So you will have each a {hardware} and software program play. And simply, sort of in any other case you have acquired, the common ultrasound technician, over $85,000 a yr within the U.S. Different locations on the 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 normal medication, emergency medication, anesthesiology, hospital. They’ve added vets. So, all of the vets world wide, with horses, docs, cats, canines. And by way of progress alternatives past that, they’re even taking a look at past enhancing their core ultrasound going into wearables, which whereas they have not introduced something particular, given the innovation behind their Butterfly IQ gadget, we anticipate nothing lower than one thing fairly progressive there.


Nina Deka:

And I can take over with Destiny. So Destiny Therapeutics is an organization that is centered on one thing known as NK cell remedy, NK stands for pure killer. That is actually thrilling stuff right here. So I suppose if you happen to have been to check NK to CAR T remedy, perhaps many individuals have heard of CAR T remedy. CAR T is one thing that has been capable of primarily remedy most cancers, nevertheless it’s acquired some limitations. With the intention to deal with someone for utilizing a CAR T remedy you’ll want 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 could possibly be, it has unintended effects. It could possibly be really poisonous contained in the human physique. And it’s extremely costly. That total course of prices a pair 100,000 {dollars}.

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

NK cells are additionally identified to be much less poisonous, have a much less poisonous response when administered into the human physique. And it additionally prices 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 medical trials, however they’re advancing. And so we’re awaiting extra information 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. In case you have extra questions, be happy to direct them to our web site or I need to reiterate that we do share a few of our analysis by way of a biweekly e-newsletter that you may join on the web site, And we very a lot look ahead to chatting with you once more very quickly. Thanks all, and have an ideal day.



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