Turnkey Tech Investing: November 2022 Market Brief

December 12, 2022 EST

By Bill Studebaker, CIO & President, ROBO Global 

November certainly finished strong as equities seemed to be getting into the ‘holiday spirit.’ Whether it was the unexpectedly impressive consumer earnings, incrementally dovish Fed speak, light positioning, a lack of meaningful ‘bad news,’ or the combination of it all, investors’ biggest near-term fears were assuaged. Yet, with much left to chew on as we approach a busy year-end, it remains to be seen just how cheerful global equity markets will remain amidst a mixed backdrop.

Investors have endured a bumpy ride for the better part of this year thanks to soaring inflation, geopolitical hardships, and whipsawing moves in equities. Still, it is remarkable just how resilient this market remains even when experiencing meaningful turbulence. Although markets have been in a “good news is bad news’ regime for many weeks, some long-awaited good news helped illustrate how despondent we had become. This was nowhere more apparent than in our indices, all of which tacked on quick gains for the month of November to illustrate the importance of being invested for the long term.

The ROBO Global Robotics and Automation Index ETF (ROBO) led the way, jumping +10.68%. The ROBO Global Artificial Intelligence ETF (THNQ) was up +5.36%, and the ROBO Global Healthcare Technology and Innovation ETF (HTEC) finished the month +4.96%. [1]

At least a portion of that movement was due to the Consumer Price Index (CPI) print which finally delivered a downside surprise to fuel the largest single-day equities rally since 2020. [2] Prices for medical care, airfares, and event tickets fell, painfully high shelter costs showed signs of deceleration, and though services drove much of the overall inflation, even those prices cooled somewhat. We believe the buying and short covering that followed the CPI announcement for October made it clear that investors welcomed the news, seeing it as confirmation that the Fed’s aggressive path of rate hikes is working and that annual price gains may have peaked. 

All that said, it has been a volatile 2022 for stocks linked to the automation and robotics theme—especially as investors in the 1H22 rotated from growth areas to more value areas. Happily, market leaders in the segment have recently provided solid 2023 guidance. Here are just a handful of examples of this general trend across the sector:

  • Jenoptik reported 12% organic growth in the period from January to September 2022, as well as a significant increase in profitability with an EBITDA margin of 17%. [3] This traction is the result of strong momentum in its semiconductor equipment business, which drove up total orders 32% YoY to 884m EUR in the first 9 months of 2022. Order backlog is up 38% to 750m EUR.
  • Daifuku reported F2Q order plan (OP) up 45% YoY to ¥14bn, 5-10% above expectations. The full-year order plan was raised substantially from ¥630bn to ¥710bn. [4]
  • Rockwell Automation reported better-than-expected F4Q22 results across all segments, particularly in intelligent devices (+16% YoY) and software and control (+32% YoY), and an improved operating margin of 22.5%. Orders grew 20% in FY22 vs. FY21, and the company has a record-high order backlog. [5]
  • ABB 3Q sales and earnings beat marginally. Orders came in +16% YoY vs 12% expected, and organic revenue grew +18% compared to the expected +15%. [6]

We remain steadfast in our view that automation and robotics is arguably one of the most important and investable themes in the market. Smart investors always keep their eyes on the future, and the question today is this: Do you think the world will be automating less or more going forward? Despite—or, in many cases, because of—the economic challenges in play today, the transformation towards a more digitized economy is gaining speed. Many companies that enable sought-after automation are posting strong growth rates in their software divisions and across their organizations.

In our opinion, reshoring, labor constraints, and myriad other factors are driving up spending in automation of every kind. In short, everywhere you look, the shift toward automation appears to be strong and accelerating. The question isn’t if automation will drive the future, but when. For investors focused on long-term returns, that’s the reality that matters as we head into the final month of 2022.

 

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] CPI YoY 7.7% vs. 7.9% cons and MoM 0.4% vs. 0.6% cons
[3] Source: Jenoptik
[4] Source: Daifuku
[5] Source: Rockwell Automation
[6] Source: ABB

 

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.

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.