With the first half of 2023 now in the books, what an unexpected and challenging ride it has been. It’s hard to believe that what started as a bear market rally could actually be the new bull market globally. Much of this year feels like we’ve been asking ourselves how much longer we can walk the tightrope—especially in the U.S., inflation has eased while jobs have remained strong and economic growth has been buoyant. However, as the Fed’s line in the sand continues to shrink, will the market fireworks continue to dazzle after the 4th of July holiday here in the US?
It goes without saying that the technology lead has been the most overwhelming since the beginning of the year, as the true secular theme has provided a strong tailwind even in the high frequency environment. For equity investors, this year’s returns were steady after a brutal 2022. All ROBO Global Indices were strong in technology.
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ToggleROBO Global Healthcare Technology & Innovation Index (Ticker: HTEC)
The ROBO Global Healthcare Technology and Innovation Index (HTEC) has underperformed the stock market this year. For the first half of 2023, the HTEC index increased by +4.38%. Investor interest in healthcare appears exhausted after years of Covid disruption, and healthcare stocks have underperformed, along with some of the biggest healthcare companies, taking a sharp turn after two years of strong action by health insurers, which recently warned of rising healthcare costs. attributed to the pandemic to delayed procedures.
This may bode well for many members of the HTEC Index heading into H2 2023, with companies heavily exposed to cutting-edge technologies in medical devices, laboratory process automation and a number of areas of healthcare innovation, including cancer, chronic and genetic diseases, diagnostics and medical instruments. We believe the acceleration of elective procedures will benefit companies across orthopedics (Smith & Nephew a), cardiovascular (Abiomed, Edwards, Boston Scientific), ophthalmology (Staar Surgical), spinal cord (Globus Medical), broader innovation in general surgery (Integra – soft tissue reconstruction) and robotic surgery players such as Intuitive Surgical and Stryker.
YTD sub-sector performance has been mixed, with the largest Medical Instruments sub-sector, which accounts for 27% of the index, posting a respectable return of 13.4%, led by the likes of Tactile Systems (+117.2% YTD, but market cap down ~60% lower levels before covid).
ROBO Global Artificial Intelligence Index (Ticker: THNQ)
The ROBO Global Artificial Intelligence Index (THNQ) returned 11% in Q2, extending its gains to 36% in 2023, as the AI ecosystem continued to recover from a dramatic decline in 2022. Investors are scrambling to catch up with remarkably rapid adoption generative technologies. AI. This is best reflected in the dramatic underestimation of GPU demand highlighted in Nvidia’s sales guidance last month.
Many investors focus on the largest cap companies that trade at a significant premium to the market. However, we expect the rest of the AI ecosystem, which trades at more reasonable valuations, to continue to see enforcement and increased adoption throughout the rest of the year. This includes other areas of AI applications such as business process automation, logistics and manufacturing, healthcare and autonomous vehicles.
10 of 11 AI subsectors posted positive returns with e-commerce as an outlier as JD.com, Etsy and Wix (excluded in rebalancing) underperformed. THNQ’s two largest sub-sectors showed strong performance, led by Business Process (weight 18.3%) +16.4%, with Samsara, Adobe, Costar and Fiserv posting strong gains; and Semiconductors (18.2% weight) rose +14.6% with NVIDIA, Global Unichip and Lam Research.
Some of the best-performing stocks this year are AI infrastructure providers Network & Security (weight 15.1%), up 14.9%, and Big Data/Analytics (weight 12.1%), up 9.6%, which are critical enablers of generative artificial intelligence, but also to ensure the availability and security of increasingly digital and autonomous operations. Highlights include MongoDB, which reported significantly better-than-expected revenue and earnings and announced many new AI-enabled products for developers; Pure Storage (scalable storage for AI use cases), Palo Alto Networks and Snowflake, which significantly raised their medium-term margin outlook at their investor day based on interest in generative AI and adoption, and announced new partnerships with Microsoft and NVIDIA. .
ROBO Global Robotics & Automation Index (ticker: ROBO)
The ROBO Global Robotics & Automation Index returned 7.1% in Q2, extending its gains in 2023 to 26.1%. The ROBO index outperformed global equities for the third quarter in a row, despite headwinds in foreign currency by more than 2 pp. ROBO has returned 30.9% over the past twelve months and has outperformed global equities over the past year, three and five years and since its inception almost a decade ago.
Q2 earnings were led by Logistics & Warehouse Automation (+18%) with strong returns from recent expansion of the Symbotic portfolio, as well as Manhattan Associates, GXO Logistics, Toyota Industries and Cargotec. The sector continued its strong recovery after cratering in 2022 as Amazon pulled back on spending.
Computing & AI (+12.3%) saw exceptional progress in Nvidia and Global Unichip, with both stocks up more than 40% in Q2. The adoption of generative artificial intelligence tools has reached a breakneck pace, driving demand for computing power to largely unexpected levels, as reflected in Nvidia’s stunning announcement that its revenue in its latest quarter, which ended in July, was expected to reach $11 billion. which is more than 50% more than analysts. estimates at the time.
Industrial automation powerhouses Rockwell, ABB and Mitsubishi Electric also rose by double-digit percentages as fears of a looming recession receded. In fact, Rockwell’s results show a clear boom in factory automation in the U.S., with 27% revenue growth — a number we usually only see in the wake of a recession. Meanwhile, Healthcare (+4.5%) and Food & Agriculture (1.3%) lagged behind with declines at Illumina, iRythm, Tecan and GEA.
ROBO ended the quarter trading at 27 times forward earnings, compared to 24 times at the start of the year and the long-term average. While multiple expansion was notable in Computing & AI (now 30x) and Logistics Automation (now 31x), it remained muted in Manufacturing & Industrial Automation (18x), which continues to present significant growth opportunities in the context of rising costs and labor. shortcomings.
According to Factset, earnings estimates point to median EPS growth of 12% in 2023 and 15% in 2024 for the ROBO index, well above the 3% and 7% EPS growth expected for the S&P500.
