With the primary half of 2023 now within the books, what an surprising and difficult trip it has been. It’s onerous to imagine that what began out as a bear market rally might, actually, be a new bull market globally. For the higher a part of this yr, it appears like we’ve got been asking ourselves how for much longer we will maintain 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 probably the most staggering YTD as an actual secular theme has supplied sturdy tailwinds even amidst the high-rate atmosphere. For fairness traders, returns this yr have been regular, after a brutal 2022. The entire ROBO International Indexes have been beneficiaries of the energy in know-how.
ROBO International Healthcare Know-how & Innovation Index (Ticker: HTEC)
The ROBO International Healthcare Know-how 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 few of the largest healthcare corporations seeing a pointy reversal after a powerful 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 nicely for lots 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 imagine 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 corresponding to Intuitive Surgical and Stryker.
Subsector efficiency YTD has been combined, with the biggest subsector Medical Devices, which accounts for 27% of the index, posting an honest 13.4% return led by corporations corresponding to 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. Traders are enjoying meet up with the remarkably speedy adoption of generative AI. That is finest mirrored within the dramatic underestimation of demand for GPUs, which Nvidia’s gross sales steering introduced underneath the highlight final month.
Many traders are targeted on the biggest cap corporations, which commerce at a big premium to the market. Nevertheless, we anticipate 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 yr. This contains different areas of AI purposes, corresponding to 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 yr are AI infrastructure suppliers in Community & Safety (15.1% weighting) up +14.9% and in Large Knowledge/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 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% prior 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 positive aspects have 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 surprising 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 usually 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 firstly of the yr and the long-term common. Whereas a number of enlargement 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 important development alternatives within the context of rising prices and labor shortages.
In response to 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.