With the primary half of 2023 now within the books, what an sudden and difficult experience it has been. It’s onerous 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 12 months, it appears like we’ve been asking ourselves how for much longer we will preserve strolling the tightrope – notably within the US, inflation has been abating whereas jobs have remained sturdy and financial development has been buoyant. Nonetheless, 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 probably the most staggering YTD as an actual secular theme has offered sturdy tailwinds even amidst the high-rate setting. For fairness buyers, returns this 12 months have been regular, after a brutal 2022. The entire ROBO International Indexes had been beneficiaries of the energy in know-how.
ROBO International Healthcare Expertise & Innovation Index (Ticker: HTEC)
The ROBO International Healthcare Expertise and Innovation Index (HTEC) has underperformed in comparison with the fairness market this 12 months. 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 firms seeing a pointy reversal after a powerful two years led by well being insurers which have just lately warned of an uptick in medical prices attributed to pandemic-postponed procedures.
This may occasionally bode properly for most of the HTEC index members going into H2 2023, with firms 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, persistent and genetic ailments, diagnostics, and medical devices. We consider the acceleration in elective procedures will profit firms throughout orthopedic (Smith & Nephew and), cardiovascular (Abiomed, Edwards, Boston Scientific), ophthalmologic (Staar Surgical), spinal twine (Globus Medical), broader common surgical procedure improvements (Integra – gentle tissue reconstruction), and Robotic Surgical procedure gamers resembling Intuitive Surgical and Stryker.
Subsector efficiency YTD has been combined, with the most important subsector Medical Devices, which accounts for 27% of the index, posting a good 13.4% return led by firms resembling Tactile Techniques (+117.2% YTD, but market cap is ~60% off pre-covid ranges).
ROBO International Synthetic Intelligence Index (Ticker: THNQ)
The ROBO International Synthetic Intelligence Index (THNQ) returned 11% in Q2, extending its 2023 positive aspects to 36% because the AI ecosystem continued to get better after a dramatic pullback in 2022. Buyers are enjoying 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 steering introduced underneath the highlight final month.
Many buyers are centered on the most important cap firms, which commerce at a big premium to the market. Nonetheless, we count on the remainder of the AI ecosystem, which trades on extra affordable valuations, to proceed to see pull-through and elevated adoption for the rest of the 12 months. This contains different areas of AI purposes, resembling enterprise course of automation, logistics and manufacturing, healthcare, and autonomous automobiles.
10 of the 11 AI subsectors posted constructive 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 positive aspects; and Semiconductors (18.2% weighting) up +14.6% with NVIDIA, International Unichip, and Lam Analysis main the pack.
A number of the best-performing shares this 12 months are AI infrastructure suppliers in Community & Safety (15.1% weighting) up +14.9% and in Massive Knowledge/Analytics (12.1% weighting) up +9.6%, that are vital enablers of generative AI but additionally guarantee the supply and safety of more and more digital and autonomous operations. Standouts embrace MongoDB, which reported considerably higher than anticipated gross sales and income 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 International Robotics & Automation Index (Ticker: ROBO)
The ROBO International Robotics & Automation Index returned 7.1% in Q2, extending its 2023 positive aspects to 26.1%. The ROBO index outperformed world equities for a 3rd consecutive quarter, regardless of overseas foreign money 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 practically ten years in the past.
The Q2 positive aspects had been led by Logistics & Warehouse Automation (+18%), with sturdy returns from latest 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 International 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 beautiful 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 truth, 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 the start of the 12 months and the long-term common. Whereas a number of growth has been outstanding 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 keeping 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.
