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Global equities rose in the final quarter of 2019 to produce their best annual gains in years. This performance was in the context of cooling trade tensions, continued US consumer strength, and monetary easing around the world. Led by US large- cap growth stocks, the MSCI AC World Index rose 9% in Q4 to close the year with a total return of 26%. While investors remain concerned with weak capital spending, it has become increasingly clear that factory activity has stabilized outside the US, raising hopes that this industrial downcycle is not spreading into a full-blown recession. This has been our long-held view: upcycles don’t die of old age. Consumer confidence and spending in the US and China have remained strong, while the Fed and the vast majority of central banks around the world are in monetary easing mode. In Q4 the global PMI for manufacturing bottomed out after an 18-month decline to the lowest level since 2012. This set up a new capex upcycle, which we believe could be reinforced by pent-up demand as businesses need to catch up with consumer strength and delays occasioned by the US-China trade conflict. We expect business confidence and corporate investments to significantly improve in 2020. We believe this set-up is attractive for robotics, AI, and automation stocks. Equities of best-in-class automation stocks from around the world are now trading on a forward P/E of 26x, up from the extreme low of 17x a year ago. While this represents a 15% premium to the 22.6x historical average, earnings growth is inflecting and looks set to return to double digits in 2020. SUMMARY The ROBO Global innovation indices closed 2019 on a strong note, largely outperforming global equities. The Robotics & Automation Index (ROBO) returned 30.3% for the year, the Artificial Intelligence Index (THNQ) increased 37.6%, and the Healthcare Technology & Innovation Index (HTEC) rose 34.9%. The good news is that earnings growth has only just inflected and looks set to return to double-digits in 2020. In this report, we discuss key trends and big movers. FOURTH QUARTER IN REVIEW: ROBO GLOBAL INNOVATION INDICES ROBO, HTEC, and THNQ QUARTERLY REVIEW Q4 2019 [email protected] | WWW.ROBOGLOBAL.COM 1 Robo Global Indices 4Q 2019 1-year 3-year 5-year ROBO Robotics & Automation 11.11% 30.28% 14.82% 11.52% HTEC Healthcare Technology & Innovation 13.02% 34.92% 33.00% 24.15% THNQ Artificial Intelligence 11.12% 37.61% 34.54% 26.23% Global Equities ACWI AC World Equities 8.95% 26.60% 12.43% 8.40% Performance 4Q 2019 (%) Prior to 30 April 2019, HTEC data is based on simulated back-casted data. Prior to 21 August 2018, THNQ data is based on simulated back-casted data.

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Page 1: FOURTH QUARTER IN REVIEW: ROBO GLOBAL INNOVATION … · Intelligence Index (THNQ) increased 37.6%, and the Healthcare Technology & Innovation Index (HTEC) rose 34.9%. The good news

Global equities rose in the final quarter of 2019 to produce their best annual gains in years. This performance was in the context of cooling trade tensions, continued US consumer strength, and monetary easing around the world. Led by US large-cap growth stocks, the MSCI AC World Index rose 9% in Q4 to close the year with a total return of 26%. While investors remain concerned with weak capital spending, it has become increasingly clear that factory activity has stabilized outside the US, raising hopes that this industrial downcycle is not spreading into a full-blown recession.

This has been our long-held view: upcycles don’t die of old age. Consumer confidence and spending in the US and China have remained strong, while the Fed and the vast majority of central banks around the world are in monetary easing mode. In Q4 the global PMI for manufacturing bottomed out after an 18-month decline to the lowest level since 2012. This set up a new capex upcycle, which we believe could be reinforced by pent-up demand as businesses need to catch up with consumer strength and delays occasioned by the US-China trade conflict. We expect business confidence and corporate investments to significantly improve in 2020.

We believe this set-up is attractive for robotics, AI, and automation stocks. Equities of best-in-class automation stocks from around the world are now trading on a forward P/E of 26x, up from the extreme low of 17x a year ago. While this represents a 15% premium to the 22.6x historical average, earnings growth is inflecting and looks set to return to double digits in 2020.

SUMMARYThe ROBO Global innovation indices closed 2019 on a strong note, largely outperforming global equities. The Robotics & Automation Index (ROBO) returned 30.3% for the year, the Artificial Intelligence Index (THNQ) increased 37.6%, and the Healthcare Technology & Innovation Index (HTEC) rose 34.9%. The good news is that earnings growth has only just inflected and looks set to return to double-digits in 2020. In this report, we discuss key trends and big movers.

FOURTH QUARTER IN REVIEW: ROBO GLOBAL INNOVATION INDICES ROBO, HTEC, and THNQ

QUARTERLY REVIEW Q4 2019

[email protected] | WWW.ROBOGLOBAL.COM 1

Robo Global Indices 4Q 2019 1-year 3-year 5-yearROBO Robotics & Automation 11.11% 30.28% 14.82% 11.52%HTEC Healthcare Technology & Innovation 13.02% 34.92% 33.00% 24.15%THNQ Artificial Intelligence 11.12% 37.61% 34.54% 26.23%

Global Equities ACWI AC World Equities 8.95% 26.60% 12.43% 8.40%

Performance 4Q 2019 (%)

Prior to 30 April 2019, HTEC data is based on simulated back-casted data. Prior to 21 August 2018, THNQ data is based on simulated back-casted data.

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FOURTH QUARTER IN REVIEW: ROBO GLOBAL’S INNOVATION INDICES

[email protected] | WWW.ROBOGLOBAL.COM 2

Q3 results were significantly better than expected and marked the turn after seven consecutive quarters of deceleration. In many ways, this looks comparable to the beginning of 2016, at the bottom of the prior earnings cycle, from which the ROBO Index produced its best two-year return.

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ROBO GLOBAL ROBOTICS AND AUTOMATION INDEX

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ROBO: ROBO GLOBAL ROBOTICS & AUTOMATION INDEXRobotics, Automation and AI stocks outperformed global equities in Q4, with the ROBO Global Robotics & Automation Index (ROBO) returning a total 11.1% in the quarter and 30.3% for the year. This compares to 8.9% (Q4) and 26.6% (2019) for the MSCI AC World Index. All but one of the Index subsectors rose in Q4, with Integration (+16%), Logistics Automation (+15%), Food & Agriculture (+15%), and Security (+13%) leading the gains, while Consumer (-18%) declined. By region, European factory automation champions outperformed, with Germany (+22%) and Switzerland (+21%) leading after a weak Q3, while the US (+9%) and Japan (+8%) lagged. Korea (+23%) and Taiwan (+13%) reflected signs of improvements in the electronics industry.

FOURTH QUARTER IN REVIEW: ROBO GLOBAL’S INNOVATION INDICES

ROBO Index Attribution (Total Return) 4Q19 20193D Printing 1% -7%Actuation 10% 41%Computing, Processing, & AI 12% 34%Consumer Products -18% -40%Food & Agriculture 15% 19%Healthcare 8% 15%Integration 16% 25%Logistics Automation 15% 53%Manufacturing & Industrial Automation 12% 46%Security 13% -27%Sensing 10% 33%

INDEX TOTAL 11% 30%

ROBO SUBSECTOR PERFORMANCE

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Performance ChartRebased 100 = January 2009

ROBO GLOBAL ROBOTICS & AUTOMATION INDEX

Periods greater than one year have been annualized. Data prior to 2 August 2013 is based on simulated back-tested data.

30.28% 14.79% 11.52% 16.52%

YTD 3 Year 5 Year 10 Year

26.60% 12.43% 8.40% 8.78%WORLD EQUITY INDEX

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MOVERS & SHAKERS

• NVIDIA (+35%) was the top performer in Q4. The global leader in Graphics Processing Units (GPUs) continues to assert its dominance in the four main markets it pursues: gaming, datacenters, professional visualization, and automotive. Its GPUs have become the de-facto standard for the training of AI in the cloud, high performance computing, autonomous driving, and video gaming.

• Toshiba Machine (+32%) was another top performer in Q4. The Japanese machine tool and robotics company continued its surge from extremely depressed levels a year ago, as sales returned to growth in Q3 and the outlook for China, which accounts for 20% of its revenue, improved. Toshiba Machine continues to appear significantly undervalued, with a large cash and securities position, including 15% of Nuflare, which both Toshiba and Hoya offered to acquire.

• iRobot (-16%) was the bottom performer. The global leader in consumer robotics and maker of the Roomba robotics vacuum system reduced its earnings outlook as US tariffs on Chinese goods continue to weigh on its profitability. The company reversed course on its planned price increases to mitigate tariff costs and is working on shifting some production outside China.

• Vocera Communications (-16%) was another top detractor. Despite beating expectations for Q3, Vocera lowered guidance for FY19, citing that a few deals are taking longer to close than expected. This longer sell-cycle is a function of growing deal size; contracts have grown over the last few years to the million-dollar range from the thousand-dollar range. In our view, Vocera’s growing deal size will actually add visibility to future performance, and the company’s market-leading position continues to make it a long-term strategic fit for ROBO.

HTEC: ROBO GLOBAL HEALTHCARE TECHNOLOGY & INNOVATION INDEX

The ROBO Global Healthcare Technology & Innovation Index (HTEC) gained 12.8% in 4Q19, and 34.9% for the year, outperforming global equities. Gains were driven by strength across all subsectors except for Data Analytics (-5%), with the largest increases in the Precision Medicine (+33%) and Regenerative Medicine (+23%) subsectors. By region, US holdings returned 13%, while Europe and AsiaPac returned 11% and 19%, respectively. More details are available on the ROBO Global Healthcare & Technology Innovation Index factsheet.

Throughout 2019, debated topics such as drug pricing and healthcare reform pressured healthcare equities. Although the sector lagged the broader market in returns, the medtech stocks remained strong throughout the year as investors look toward disruptive technology in healthcare. Breakthroughs in gene therapy helped drive a comeback in life science companies, whose stocks saw weaker performance in the first three quarters of the year.

FOURTH QUARTER IN REVIEW: ROBO GLOBAL’S INNOVATION INDICES

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MOVERS & SHAKERS

• Arrowhead Pharmaceuticals (+125%) develops medicines that treat diseases by silencing the genes that cause them. Through a collaboration with Janssen, Arrowhead announced positive Phase 2 clinical data, and first clinical data on two Hepatitis B therapies in November. The company also submitted an application to the FDA to trial a carcinoma therapy, which may further expand the company’s pipeline beyond hepatitis. Novartis’s acquisition of The Medicines Company also fueled adjacent movements in the broader RNAi space. The company failed our quantitative screen for Q1, leading to exclusion from HTEC.

FOURTH QUARTER IN REVIEW: ROBO GLOBAL’S INNOVATION INDICES

HTEC Index Attribution (Total Return) 4Q19 (4/30/19)Data Analytics -5% -4% Diagnostics 9% 7%Genomics 10% 12%Medical Instruments 13% 17%Precision Medicine 33% 25%Process Automation 12% 19%Regenerative Medicine 23% -6%Robotics 9% 12%Telehealth 15% 17%

INDEX TOTAL 13% 13%

HTEC SUBSECTOR PERFORMANCE

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Performance ChartRebased 100 = January 2009

ROBO GLOBAL HEALTHCARE TECHNOLOGY AND INNOVATION INDEX

Periods greater than one year have been annualized. The data shown is derived from the published index values. Prior to 30 April 2019, the data is based on simulated back-casted data.

34.92% 33.01% 24.15% 22.25%

YTD 3 Year 5 Year 10 Year

23.93% 15.90% 9.36% 12.18%GLOBAL HEALTHCARE INDEX26.60% 12.43% 8.40% 8.78%WORLD EQUITY INDEX

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• Tactile Medical (+60%), the makers of a device used to treat chronic swelling conditions, reported strong Q3 earnings, with sales growth of 37%, and raised FY19 growth expectations to 29.5% from 27.3%, driven largely by high-diagnosing facilities and ongoing efforts to expand sales force. Increased focus on lymphedema accounts with greater growth opportunity and expanding in-network coverage in the commercial payer channel should continue to drive momentum moving forward.

• Fluidigm (-25%) provides labs with solutions that analyze cancer, inflammatory diseases, and immunotherapies. Increasing competitive threat and delays in end-market budgets led to a rough Q3 earnings report, and lowered expectations for the remainder of the year. Fluidigm missed revenue expectations by $2M, and guided Q4 revenue below expectations. That said, with its current market position in mass cytometry and investment in sales operations, the company remains well positioned for the long term.

• Cerus (-18%) supplies technology to blood centers and hospitals that ensures safe transfusion of blood products used worldwide. The company reported a strong Q3 but did not raise FY19 guidance due to forex headwinds. Over the long term, we expect sustainable growth for Cerus due to new regulatory guidelines, as well as new products in development. In Q4, the FDA issued new platelet transfusion safety guidelines that should provide a tailwind for US demand for Cerus’s INTERCEPT, the only FDA approved option with clinical, logistic, and economic benefits beyond reduced risk of bacterial infection.

THNQ: ROBO GLOBAL ARTIFICIAL INTELLIGENCE INDEXThe ROBO Global Artificial Intelligence Index (THNQ) rose 11.1% in 4Q19. All eleven sub-sectors delivered positive returns with Semiconductor (+18%) and Cloud Providers (+17%) posting the strongest gains. For 2019, THNQ returned a total of 37.6%, compared to 26.6% for the MSCI AC World Index. More details are available on the ROBO Global Artificial Intelligence Index factsheet.

THNQ SUBSECTOR PERFORMANCE

FOURTH QUARTER IN REVIEW: ROBO GLOBAL’S INNOVATION INDICES

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Performance ChartRebased 100 = January 2009

ROBO GLOBAL ARTIFICIAL INTELLIGENCE INDEX

Periods greater than one year have been annualized. The data shown is derived from the published index values. Data prior to 21 August 2018 is based on simulated back-tested data.

37.61% 34.64% 26.23% 24.09%

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26.60% 12.43% 8.40% 8.78%WORLD EQUITY INDEX

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FOURTH QUARTER IN REVIEW: ROBO GLOBAL’S INNOVATION INDICES

Semiconductor was the best performing sector (+18%) in 4Q as chip companies reported better-than-expected results and the US/China tariff situation eased. Broad-based demand continued to bounce along the bottom with PC and memory industries leading the way and an early Chinese New Year expected to help 1Q results. Nvidia (+35%), Infineon (+27%), and Taiwan Semiconductor (+26%) performed particularly well. Meanwhile, semiconductor manufacturing equipment providers remain on a fast growth trajectory, driven by emerging applications: Artificial Intelligence, 5G, AR/VR, Cloud, and High-Performance Computing. Key beneficiaries include ASML Holdings (+19%) and Lam Research (+26%), which continue to see strength from increasing process complexity. ASML’s EUV Lithography continues to grow in terms of use cases.

Cloud Providers gained +17%, driven by Baidu and Alibaba’s strong earnings and healthy growth in user traffic and improved margins. Baidu had underperformed for most of the year but finally demonstrated operating leverage, and its mobile ecosystem traffic and user engagement indicated better-than-expected growth. We anticipate that Baidu and Alibaba will continue to show progress in monetization of its platforms with integrated features using machine learning for better user experience and ad conversion.

Business Process also demonstrated strong performance, led by solid results from various index members including FinTech solution provider Fair Isaac (+23%) and leading Robotic Process Automation vendor Blue Prism (+28%). Despite macroeconomic and political uncertainty in the US and elevated valuations from the group, business momentum continues to be strong due to strong product cycles and robust spending around digital transformation. Meanwhile, healthcare underperformed as Veracyte and Veeva Systems took a breather after particularly strong performance earlier in the year. Fundamentals remain strong, but high valuations weighed on some of the companies during the quarter. Consumer continues to be a mixed bag as GrubHub and iRobot faced headwinds, while Spotify (+31%) continues to shine with its strong subscription growth. GrubHub is facing some tough competition from private companies for the first time and is aiming to recapture market share in the online food delivery market by reinvesting in technology (user interface and AI).

THNQ Index Attribution (Total Return) 4Q19 2019Big Data/Analytics 10% 40%Business Process 9% 38%Cloud Providers 17% 26%Cognitive Computing 16% 55%Consulting Services 7% 37%Consumer 5% 2%Ecommerce 13% 67%Factory Automation 14% 45%Healthcare 3% 33%Network & Security 7% 16%Semiconductor 18% 61%

INDEX TOTAL 11% 38%

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FOURTH QUARTER IN REVIEW: ROBO GLOBAL’S INNOVATION INDICES

MOVERS & SHAKERS

• Tesla (+74%) posted unexpectedly strong earnings. The pioneer in electric vehicles with advanced autonomous software technology is now developing its own AI hardware. The earlier-than-anticipated launch of the Model Y cars and the announcement that the Shanghai factory has already produced 1k vehicles helped drive enthusiasm for the stock after struggles with operational execution earlier in the year. Tesla shares continued to climb to record highs after reporting that it delivered 367,500 cars, or +45% YoY, during 2019.

• Nvidia (+35%) was a strong performer in Q4. The global leader in Graphics Processing Units (GPUs) continues to assert its dominance of the four main markets it pursues: gaming, datacenters, professional visualization, and automotive. Its GPUs have become de-facto standard for the training of AI in the cloud, high-performance computing, autonomous driving, and video gaming. Currently, Nvidia is not seeing much competition in the AI/Deep Learning and Neural Networking markets due to the large ecosystem the company has created around its CUDA software and cuDNN libraries.

• iRobot (-16%) was the bottom performer. The global leader in consumer robotics and maker of the Roomba robotics vacuum system reduced its earnings outlook as US tariffs on Chinese goods continue to weigh on its profitability. The company reversed course on its planned price increases to mitigate tariff costs and is working on shifting some production outside China.

• Arista Networks (-15%), a leading networking equipment provider, provided a weaker-than-expected outlook due to a large order push-out from a cloud customer. Arista develops and provides Ethernet switches for datacenters. While the magnitude of the miss was great and visibility is limited, we believe this is a short-term setback for a company with a strong technological advantage in a promising Cloud/datacenter market.

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FOURTH QUARTER IN REVIEW: ROBO GLOBAL’S INNOVATION INDICES

SUBSECTOR EXPOSUREData Analytics 6.58%

Diagnostics 16.20%

Genomics 10.73%

Lab Process Automation 28.62%

Medical Instruments 9.56%

Precision Medicine 12.58%

Regenerative Medicine 4.81%

Robotics 5.45%

Telehealth 5.47%

TOP 10 HOLDINGS WEIGHTTABULA RASA HEALTHCARE INC 1.58%

AXOGEN INC 1.55%

TELADOC HEALTH INC 1.51%

CHARLES RIVER LABORATORIES 1.51% INTERNATIONAL INC

PING AN HEALTHCARE AND 1.49% TECHNOLOGY CO LTD

CARDIOVASCULAR SYSTEMS INC 1.49%

BOSTON SCIENTIFIC CORP 1.48%

VARIAN MEDICAL SYSTEMS INC 1.48%

ILLUMINA INC 1.46%

THERMO FISHER SCIENTIFIC INC 1.46%

TOTAL 15.00%

HTEC

ROBO Global Healthcare Technology & Innovation Index

Roboglobal.com/HTEC

SUBSECTOR EXPOSUREBig Data/Analytics 11.71%

Business Process 18.52%

Cloud Providers 8.6%

Cognitive Computing 6.4%

Consulting Services 2.77%

Consumer 9.13%

Ecommerce 9.92%

Factory Automation 1.39%

Healthcare 5.23%

Network & Security 13.65%

Semiconductor 12.68%

TOP 10 HOLDINGS WEIGHTTENCENT HOLDINGS LTD 1.88%

IROBOT CORP 1.87%

BAIDU INC 1.83%

NVIDIA CORP 1.78%

AMAZON.COM INC 1.77%

HUBSPOT INC 1.75%

MICROSOFT CORP 1.74%

FAIR ISAAC CORP 1.72%

SALESFORCE.COM INC 1.72%

GRUBHUB INC 1.71%

TOTAL 17.77%

THNQ

ROBO Global Artificial Intelligence Index

Roboglobal.com/THNQ

SUBSECTOR EXPOSURE3D Printing 3.05%

Actuation 11.8%

Computing, Processing, & AI 21.27%

Consumer Products 1.79%

Food & Agriculture 5.6%

Healthcare 11.33%

Integration 7.28%

Logistics Automation 9.64%

Manufacturing & Industrial 15.08% Automation

Security 1.99%

Sensing 11.16%

TOP 10 HOLDINGS WEIGHTIROBOT CORP 1.79%

NVIDIA CORP 1.78%

HARMONIC DRIVE SYSTEMS INC 1.78%

KOH YOUNG TECHNOLOGY INC 1.77%

HOLLYSYS AUTOMATION 1.76% TECHNOLOGIES LTD

COGNEX CORP 1.75%

KRONES AG 1.74%

BLUE PRISM GROUP PLC 1.74%

HIWIN TECHNOLOGIES CORP 1.70%

YASKAWA ELECTRIC CORP 1.68%

TOTAL 17.50%

ROBO

ROBO Global Robotics & Automation Index

Roboglobal.com/ROBO

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FOURTH QUARTER IN REVIEW: ROBO GLOBAL’S INNOVATION INDICES

Copyright © 2020 by ROBO Global, LLC. All rights reserved. ROBO Global® is a registered trademark of ROBO Global, LLC.ROBO Global, LLC is referred to as “ROBO.” Redistribution, reproduction and/or photocopying in whole or in part are prohibited without written permission. This document does not constitute an offer of services in jurisdictions where ROBO does not have the necessary licenses. All information provided by ROBO is impersonal and not tailored to the needs of any person, entity or group of persons. The ROBO Global® Robotics and Automation Index and the ROBO Global® Robotics and Automation UCITS Index (the “Indices”) are the property of ROBO who have contracted with Solactive AG to calculate and maintain the Indices. The Indices are not sponsored by Solactive AG or its affiliates. Neither Solactive AG, nor any of their affiliates will be liable for any errors or omissions in calculating the Indices. Closing prices for the Indices are calculated by Solactive AG based on the closing price of the individual constituents of the index as set by their primary exchange. Historical performance illustrations in the Indices are based on a backcast calculation. A backcast calculation can be materially different from a backtest analysis. Past performance of an index is not a guarantee of future results. The value of investments may go down as well as up and potential investors may not get back the amount originally invested. It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments based on that index. ROBO makes no assurance that investment products based on the index will accurately track index performance or provide positive investment returns. A decision to invest in any such investment fund or other investment vehicle should not be made in reliance on any of the statements set forth in this document. ROBO is not in a position to give advice on the suitability of any investments for potential investors. Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other vehicle. Inclusion of a security within an index is not a recommendation by ROBO to buy, sell, or hold such security, nor is it considered to be investment advice. It is not intended that anything stated in this document should be construed as an offer or invitation to buy or sell any investment in any Investment Fund or other investment vehicle referred to in this website, or for potential investors to engage in any investment activity. No Investment Fund or other investment vehicle based on the Indices is sponsored, promoted, sold or supported in any other manner by ROBO or Solactive AG (the “Index Parties”) nor do the Index Parties offer any express or implicit guarantee or assurance either with regard to the results of using the Indices and/or an Index trademark or an Index price at any time or in any other respect. The Index Parties use their best efforts to ensure that the Indices are calculated correctly. Irrespective of their obligations towards the Company, the Index Parties have no obligation to point out errors in the Indices to third parties including but not limited to investors in, and/or financial intermediaries of, any Investment Funds or other investment vehicles. Neither publication of the Indices by Solactive AG nor the licensing of the Indices or an Index trademark by ROBO for the purpose of use in connection with any Investment Fund or other investment vehicle based on the Indices constitutes a recommendation by the Index Parties to invest capital in any such fund or investment vehicle nor does it in any way represent an assurance or opinion of the Index Parties with regard to any investment in such fund or investment vehicle. These materials have been prepared solely for informational purposes based upon information generally available to the public from sources believed to be reliable. No content contained in these materials (including index data, ratings, creditrelated analyses and data, model, software or other application or output therefrom) or any part there of (Content) may be modified, reverse-engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of ROBO. The Content shall not be used for any unlawful or unauthorized purposes. ROBO and its third-party data providers and licensors (collectively “ROBO Parties”) do not guarantee the accuracy, completeness, timeliness or availability of the Content. ROBO Parties are not responsible for any errors or omissions, regardless of the cause, for the results obtained from the use of the Content. The content is provided on an “as is” basis. 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