With the primary half of 2023 now within the books, what an sudden and difficult experience it has been. It’s exhausting to consider that what began out as a bear market rally might, in truth, be a new bull market globally. For the higher a part of this yr, it looks like we now have been asking ourselves how for much longer we will hold strolling the tightrope – notably within the US, inflation has been abating whereas jobs have remained sturdy and financial development has been buoyant. However, because the Fed’s line within the sand retains being drawn again additional, will the market’s fireworks proceed to dazzle after the Fourth of July vacation right here within the US?
It goes with out saying that tech outperformance has been essentially the most staggering YTD as an actual secular theme has supplied sturdy tailwinds even amidst the high-rate atmosphere. For fairness buyers, returns this yr have been regular, after a brutal 2022. All the ROBO World Indexes had been beneficiaries of the energy in know-how.
ROBO World Healthcare Expertise & Innovation Index (Ticker: HTEC)
The ROBO World Healthcare Expertise and Innovation Index (HTEC) has underperformed in comparison with the fairness market this yr. For H1 2023, the HTEC index was up +4.38%. Investor curiosity in healthcare seems jaded after years of Covid disruptions, and healthcare equities have been underperforming, together with a number of the largest healthcare corporations seeing a pointy reversal after a robust two years led by well being insurers which have lately warned of an uptick in medical prices attributed to pandemic-postponed procedures.
This will likely bode properly for most of the HTEC index members going into H2 2023, with corporations predominantly uncovered to cutting-edge applied sciences in medical units, lab course of automation, and a number of healthcare areas of innovation together with most cancers, power and genetic illnesses, diagnostics, and medical devices. We consider the acceleration in elective procedures will profit corporations throughout orthopedic (Smith & Nephew and), cardiovascular (Abiomed, Edwards, Boston Scientific), ophthalmologic (Staar Surgical), spinal twine (Globus Medical), broader basic surgical procedure improvements (Integra – gentle tissue reconstruction), and Robotic Surgical procedure gamers akin to Intuitive Surgical and Stryker.
Subsector efficiency YTD has been blended, with the biggest subsector Medical Devices, which accounts for 27% of the index, posting a good 13.4% return led by corporations akin to Tactile Programs (+117.2% YTD, but market cap is ~60% off pre-covid ranges).
ROBO World Synthetic Intelligence Index (Ticker: THNQ)
The ROBO World Synthetic Intelligence Index (THNQ) returned 11% in Q2, extending its 2023 features to 36% because the AI ecosystem continued to get well after a dramatic pullback in 2022. Traders are taking part in meet up with the remarkably fast adoption of generative AI. That is greatest mirrored within the dramatic underestimation of demand for GPUs, which Nvidia’s gross sales steerage introduced beneath the highlight final month.
Many buyers are centered on the biggest cap corporations, which commerce at a big premium to the market. Nonetheless, we count on the remainder of the AI ecosystem, which trades on extra cheap valuations, to proceed to see pull-through and elevated adoption for the rest of the yr. This consists of different areas of AI purposes, akin to enterprise course of automation, logistics and manufacturing, healthcare, and autonomous autos.
10 of the 11 AI subsectors posted optimistic returns with Ecommerce because the outlier, as JD.com, Etsy, and Wix (excluded at rebalance) underperformed. THNQ’s two largest subsectors posted sturdy efficiency, led by Enterprise Course of (18.3% weighting) up +16.4% with Samsara, Adobe, Costar, and Fiserv exhibiting sturdy features; and Semiconductors (18.2% weighting) up +14.6% with NVIDIA, World Unichip, and Lam Analysis main the pack.
Among the best-performing shares this yr are AI infrastructure suppliers in Community & Safety (15.1% weighting) up +14.9% and in Large Information/Analytics (12.1% weighting) up +9.6%, that are vital enablers of generative AI but additionally guarantee the provision and safety of more and more digital and autonomous operations. Standouts embody MongoDB, which reported considerably higher than anticipated gross sales and earnings and introduced many new AI-enabling merchandise for builders; Pure Storage (scalable storage for AI use instances), Palo Alto Networks, and Snowflake, which markedly raised its mid-term outlook for margins at its investor day on the again of generative AI curiosity and adoption, and introduced new partnerships with Microsoft and NVIDIA.
ROBO World Robotics & Automation Index (Ticker: ROBO)
The ROBO World Robotics & Automation Index returned 7.1% in Q2, extending its 2023 features to 26.1%. The ROBO index outperformed world equities for a 3rd consecutive quarter, regardless of overseas forex headwinds of greater than 2ppt. ROBO returned 30.9% up to now twelve months and has outperformed world equities over the previous one, three, and 5 years, and since its inception almost ten years in the past.
The Q2 features had been led by Logistics & Warehouse Automation (+18%), with sturdy returns from current portfolio addition Symbotic, in addition to Manhattan Associates, GXO Logistics, Toyota Industries and Cargotec. The sector continued its highly effective restoration, after cratering in 2022 when bellwether Amazon pulled again on spending.
Computing & AI (+12.3%) noticed standout advances at Nvidia and World Unichip, with each shares up over 40% in Q2. Adoption of generative AI instruments has reached a frenetic tempo, driving demand for computing energy to largely sudden ranges, as mirrored in Nvidia’s gorgeous announcement that its income within the July-ending quarter appeared set to achieve $11bn, greater than 50% above analysts’ estimates on the time.
As fears of an imminent recession receded, industrial automation powerhouses Rockwell, ABB and Mitsubishi Electrical additionally elevated by double-digit percentages. In reality, Rockwell’s outcomes level to an more and more apparent increase in US manufacturing unit automation, with 27% gross sales development – a quantity we sometimes solely see popping out of a recession. In the meantime, Healthcare (+4.5%) and Meals & Agriculture (1.3%) lagged, with declines at Illumina, iRythm, Tecan, and GEA.
ROBO ended the quarter buying and selling on 27x ahead earnings, in comparison with 24x at first of the yr and the long-term common. Whereas a number of growth has been exceptional in Computing and AI (now 30x) and Logistics Automation (now 31x), it has remained subdued in Manufacturing & Industrial Automation (18x), which continues to current vital development alternatives within the context of rising prices and labor shortages.
In accordance with Factset, earnings estimates level to median EPS development of 12% in 2023 and 15% in 2024 for the ROBO index, considerably above the three% and seven% EPS development anticipated for the S&P500.
