Turnkey Tech Investing: Jan 2023 Market Brief

February 06, 2023 EST

By Bill Studebaker, CIO & President, ROBO Global 

These are strange times, indeed. Just as investors got comfortable with the idea that this might be a good time to be bearish, the US market started its slide into a soft landing. The bulls were smiling as the S&P 500 crossed the 4000-resistance level last week and then sustained that rally as markets digested several earnings beats along with some arguably encouraging macro data. It’s been welcome if not somewhat bewildering news on the heels of a very disappointing 2022.

That said, throughout the complex market cycle, we continued to emphasize the importance of investing and staying invested in robotics, AI, and healthcare innovation. Investors who followed that guidance may have benefited from the recent reset that has already delivered plenty of green shoots and supported a strong finish for January.

The ROBO Global Artificial Intelligence ETF (THNQ) led the pack, closing +14.94%, followed by the ROBO Global Robotics and Automation Index ETF (ROBO) which gained +14.72%. Trailing but still in a strong position, the ROBO Global Healthcare Technology and Innovation ETF (HTEC) finished the month +7.58%. [1]

Even with those recent climbs, we are very cognizant of the hurdles corporates must now clear. With the US earnings bar lower than it’s been in some time, the looming round of bulk earnings comes with questions. Will the beats simply be a function of softer expectations as we head toward a more sinister horizon? Or will they be a genuine testament to resiliency amid an improving macro backdrop? In other words, has the bar been set too low? 

In the case of robotics, healthcare innovation, and AI, we don’t think so. Not long ago, automation was considered a luxury for companies looking to increase productivity, lower costs, improve margins, and outplay less tech-savvy competitors. Today, as the cost of robots and other automation solutions is becoming increasingly affordable, automation has shifted from nice-to-have to competitive necessity. With automation now a priority in nearly every sector, many of our companies are entering 2023 with record backlogs.

Still, we recognize that significant headwinds remain. Inflation continues to be uncomfortably high (with the Personal Consumption Expenditures Price Index, a measure of the prices that people living in the United States pay for goods and services (PCE) up +5% YoY). With saving rates at two-decade lows, consumers have accelerated their reliance on credit, and retailers like Macy’s (M) are noting customers under pressure. The ongoing conflict in Eastern Europe is an underappreciated wildcard. All things considered, consumer data remains remarkably robust, with higher-than-expected numbers from both the UMich Consumer Sentiment Survey (64.9 vs 64.6 cons) and the GDP print [2] (+2.9% vs +2.6% cons). In an environment where bad has been good and good has been bad, good news seems to be good news once again!

Other good news from our perspective is the renewed strength of the international market. The outperformance of Europe compared to the US over the last 90 days is the highest since 2000, with warmer weather pushing down gas prices and China’s reopening fueling growth. We believe the region has become highly investable once again. With ~60% of the ROBO ETF’s exposure diversified outside of the US, this level of international outperformance is a welcome change. And yet the ROBO ETF’s performance is not reliant on that shift thanks to the fact that the automation economy is borderless.

Everywhere we look, we see three key growth areas for businesses: 

  1. Further ‘robotification’ of manufacturing

  2. Automation in high-touch service businesses

  3. The use of AI in knowledge-based industries

The ROBO ETF offers investors the opportunity to participate in this global productivity renaissance. (That opportunity is magnified by the fact that ROBO is still trading below its historical average forward P/E [3]—a reality that we believe may make now the right time to invest.) 

The HTEC ETF enables investors to take advantage of the long runway of growth in healthcare and AI. Although healthcare is already a globally mature industry that contributes 10% of the world's GDP, expenditures are rising unsustainably and could exceed $18 trillion by 2040, according to our research. The need to simultaneously lower costs and improve patient well-being has created a breeding ground for innovation. HTEC seeks to capture the value created by the technology companies enabling this necessary change.

We see similar opportunities across the spectrum of AI and machine learning (ML) technologies. The THNQ ETF is designed specifically to capture the fast-growing and global AI ecosystem. Just recently, Microsoft revealed that it had made a multibillion-dollar investment in the AI research lab, OpenAI, to develop new productivity software and transform its business model. These systems will soon provide Microsoft and companies elsewhere with real-time data, analysis, and insights to help them make better decisions and create superior strategies. The impacts on predictive analytics, business process improvements, supply chain optimization, and more are expected to be extraordinary.

2023 is sure to bring new surprises. It’s too early to tell if the bears or the bulls are ‘right’ about what’s to come. At ROBO Global, however, we feel blissfully isolated from the fray thanks to a strategy that focuses on three areas that are positioned for sustainable, long-term growth regardless of the market and economic headwinds on the radar. In our opinion, robotics, healthcare innovation, and AI are undeniable drivers for the future. It’s a trajectory we’re counting on. 

 

ROBO Top Ten Holdings, HTEC Top Ten Holdings, THNQ Top Ten Holdings 

SOURCES:
[1] Source: ROBO Global®, S&P CapitalIQ, For standardized performance data current to the most recent month end, please visit www.roboglobaletfs.com.
[2] Gross domestic product (GDP) is a comprehensive measure of U.S. economic activity
[3] The price-to-earnings (P/E) ratio is the ratio for valuing a company that measures its current share price relative to its per-share earnings. (Source: Investopedia)

 

The performance data quoted represents past performance and is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when sold or redeemed, may be worth more or less than the original cost.  Current performance may be lower or higher than the performance data quoted. Holdings are subject to change. Indices are unmanaged and do not include the effect of fees. One cannot invest directly in an index.

This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the fund or any security in particular. Please consult your financial advisor for further information.

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Carefully consider the Funds’ investment objectives, risk factors, charges and expenses before investing. This and additional information can be found on the Funds' full or summary prospectuses, which may be obtained at www.roboglobaletfs.com. Read the prospectus carefully before investing.

Investing involves risk, including the possible loss of principal. International investments may also involve risk from unfavorable fluctuations in currency values, differences in generally accepted accounting principles, and from economic or political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Narrowly focused investments and investments in smaller companies typically exhibit higher volatility. There is no guarantee the funds will achieve their stated objective. ROBO, HTEC, and THNQ are non-diversified.

The liquidity of the A-shares market and trading prices of A-shares could be more severely affected than the liquidity and trading prices of other markets because the Chinese government restricts the flow of capital into and out of the A-shares market. The funds may experience losses due to illiquidity of the Chinese securities markets or delay or disruption in execution or settlement of trades.

The risks associated with investments in Robotics and Automation Companies include, but are not limited to, small or limited markets for such securities, changes in business cycles, world economic growth, technological progress, rapid obsolescence, and government regulation. Robotics and Automation Companies, especially smaller, start-up companies, tend to be more volatile than securities of companies that do not rely heavily on technology. Rapid change to technologies that affect a company's products could have a material adverse effect on such company's operating results. Robotics and Automation Companies may rely on a combination of patents, copyrights, trademarks and trade secret laws to establish and protect their proprietary rights in their products and technologies. There can be no assurance that the steps taken by these companies to protect their proprietary rights will be adequate to prevent the misappropriation of their technology or that competitors will not independently develop technologies that are substantially equivalent or superior to such companies' technology.

The risks associated with Artificial Intelligence (AI) Companies include, but are not limited to, small or limited markets, changes in business cycles, world economic growth, technological progress, rapid obsolescence, and government regulation. Rapid change to technologies that affect a company’s products could have a material adverse effect on such company’s operating results. AI Companies also rely heavily on a combination of patents, copyrights, trademarks and trade secret laws to establish and protect their proprietary rights in their products and technologies. There can be no assurance that the steps taken by these companies to protect their proprietary rights will be adequate to prevent the misappropriation of their technology or that competitors will not independently develop technologies that are substantially equivalent or superior to such companies’ technology. AI Companies typically engage in significant amounts of spending on research and development, and there is no guarantee that the products or services produced by these companies will be successful.

The risks associated with Medical Technology Companies include, but are not limited to, small or limited markets for such securities, changes in business cycles, world economic growth, technological progress, rapid obsolescence, and government regulation.

Diversification may not protect against market risk.

Beginning September 2, 2020, market price returns are based on the official closing price of an ETF share or, if the official closing price isn't available, the midpoint between the national best bid and national best offer (“NBBO”) as of the time the ETF calculates current NAV per share. Prior to September 2, 2020, market price returns were based on the midpoint between the Bid and Ask price. NAVs are calculated using prices as of 4:00 PM Eastern Time. The returns shown do not represent the returns you would receive if you traded shares at other times.