The ROBO World indices declined in step with international equities in Q3 within the face of excessive inflation and jumbo fee hikes to finish the quarter 42%-50% beneath their all-time highs in 2021. The Robotics & Automation Index (ticker: ROBO) misplaced 7%, the Synthetic Intelligence Index (ticker: THNQ) dropped 4%, and the Healthcare Expertise & Innovation Index (ticker: HTEC) declined 6%. Valuations have compressed nicely beneath long-term historic averages. On this report, we talk about main tendencies and large movers throughout our portfolios.
Webinar Transcript:
Jeremie Capron:
Whats up everybody and welcome to ROBO World’s October 2022 investor name. My identify is Jeremie Capron, I am the director of analysis and I am speaking to you from New York. And with me right this moment my colleagues Invoice Studebaker and Zeno Mercer. We’ll begin with a quick reminder of what we do at ROBO World after which we’ll share some ideas about what’s occurring within the markets. After which we’ll take a better have a look at every of the three index portfolios, ROBO, THNQ and HTEC. And naturally we’ll be taking your questions, so be happy to sort them into the Q and A field on the backside of your display.
So let me begin with this fast overview of ROBO World. We’re analysis and funding advisory firm that is centered on robotics, AI and healthcare applied sciences. And we handle three major index portfolios which can be tracked by practically $3 billion in property. These are primarily in ETFs. And our first index portfolio is ROBO, that was the primary robotics and automation index and it began virtually 9 years in the past in 2013. And the second is THNQ, T-H-N-Q, that’s the synthetic intelligence index. And the third one is HTEC, the healthcare expertise and innovation index. And you’ll see right here the annualized returns since inception of every index as of the tip of September, 2022.
So these portfolios, they mix analysis with the advantages of index investing within the ETF wrapper. They’re composed of greatest at school firms from all around the globe. The small, mid and enormous caps that we analysis and we rating on numerous metrics, and the very best scoring shares make it into the portfolios. Then we rebalance each quarter and the result’s portfolios which have a really low overlap with broad fairness indices like DSNP 500 or the NASDAQ and different international fairness indices.
Okay, so let’s speak about what we’re seeing within the markets. And the elephant within the room right here is that the world’s greatest firms on the forefront of robotics, of AI, of healthcare expertise as represented by the ROBO international indices, they’re now buying and selling 40 to 50% beneath their 2021 highs. Sure, a variety of shares are on sale proper now. World equities are down greater than 25% this yr, however these should not your common shares right here. Once more, we’re speaking concerning the expertise and market leaders. They’re firms which can be sometimes very worthwhile and rising a lot quicker than the economic system. In reality, once we have a look at their stability sheets, we discover {that a} majority of the businesses within the ROBO, the AI and the healthcare tech index, they’ve more money than debt. And they also have a optimistic web money place.
And extra importantly, many of those firms are relative beneficiaries of the present atmosphere. When you concentrate on the issues that we face right this moment within the international economic system, now we have the labor shortages, now we have rising prices throughout the board. The one clear and easy response from enterprise leaders is automation and enterprise leaders and companies are making it a prime precedence. In reality, and Invoice will come again to that shortly, demand for automation right this moment is at document highs and rising and there may be extra demand for robots and automation that suppliers can provide.
And on the similar time, this down market in equities, we consider is giving traders a possibility to put money into these firms at a reduction. In reality, the three portfolios at the moment are buying and selling considerably beneath historic common valuations and we’ll come again to that. So let us take a look at robotics and automation first, and for that I am going to cross it on to Invoice Studebaker.
Invoice Studebaker:
Good morning everybody. Thanks for the time and curiosity. Jeremie, thanks for the introduction. Simply to comply with up on Jeremie’s feedback, we actually know that the third quarter was a tough interval for traders. And September was a strong illustration of simply how tough it may be to be centered on the long term horizons, notably when the market is continually being tripped up by a confluence of points and occasions. And we perceive that these are difficult occasions. Concurrently Jeremie commented, the down market is giving traders actually a welcome alternative to make the most of deep reductions and put money into firms that we see they’re delivering on the required automation applied sciences.
And we consider, as Jeremie additionally commented, that this has created an atmosphere, it is form of an ideal storm for traders, to extend publicity to a supercycle for automation and demand for automation applied sciences, as I am going to remark shortly in additional element, has by no means been greater and the problems which can be reducing fairness costs that we’re all considerably aware of, the labor shortages, the compressed margins, the provision chain bottlenecks and the necessity to scale back working prices are considerably rising the necessity for adoption. And as we doubtlessly go right into a recessionary atmosphere, we predict companies are going to be very eager to need to spend on effectivity and automation.
As you’ll be able to see for the quarter, the ROBO index declined about 7%, which is an identical decline for international equities, which has resulted in valuations which have compressed nicely beneath our historic averages. And the broad weak spot was represented in 10 of our 11 sub sectors that we invested that had proven losses. And importantly although, as we glance into the fourth quarter past, we see an ideal alternative for traders to sharpen their pencil and add to this, what we consider, is inevitable automation theme. That is on sale like a lot of the market.
And we see an enormous discrepancy as the place inventory costs are, inventory costs are 40, 50% off their all time highs regardless of the sturdy fundamentals of automation that we’ll contact on shortly. And lots of of our constituents actually are firing on all cylinders and might’t make sufficient to satisfy the demand. As you’ll be able to see right here on the valuations, the PE is 12% cheaper than our historic common. And I do need to underscore that our valuation is predicated on PE, many different tech exposures are primarily based on worth of gross sales, and in lots of instances are arguably over owned and overvalued. I do need to make the remark that lower than 3% of ROBO is within the S&P 500. So this can be a distinctive publicity that also may be very below owned and underappreciated by a lot of the market and we predict that is a chance.
Subsequent slide please. So from an EV to gross sales standpoint, you’ll be able to see that we’re buying and selling fairly near parity to historic valuations. So ROBO is buying and selling round 2.7 occasions EV to gross sales. Once more, the context of the place expertise trades, I imply, Adobe simply made a purchase order of an AI asset for 40 occasions trailing EV to gross sales. In order that hopefully offers you some context that I might not say that we’re hardly overvalued. Specifically, I feel our valuation of our portfolio has developed fairly considerably over time and has develop into a lot growthier, in order that’s form of skewed the valuation of the upside. So I might argue that even at 2.7 occasions relative to the previous, our valuation is fairly low-cost.
And simply as a construct on to that, what we have seen right here available in the market, we have had three consecutive quarter declines within the ROBO index and that is actually form of an unprecedented improvement since we launched the index again in 2013. And it is solely similar to the again check going again to ’08, ’09. And importantly although, earnings estimates, I do know that that is possibly form of the elephant within the room, that folks suppose the earnings estimates are going to return down dramatically. We actually haven’t seen that but. For 2022 and 2023, earnings estimates have solely been minimize by about one to three% of the final three months and simply 6% during the last yr. And this I feel is a mirrored image of the power and demand for automation applied sciences and options.
And actually importantly, the flexibility for ROBO firms to deal with rising prices and provide chain challenges. Many of those firms have been round for a few years and have had the talent set to adapt to and handle completely different financial environments and to have the ability to cross on and costs. And I feel importantly, the income estimates have seen really optimistic upgrades during the last three and 12 months and level to a few 12% gross sales development for 2022 and about 9% for 2023. Though the market is skeptical that estimates will not come below extra stress, that thus far has been the report card.
Subsequent slide please. In order Jeremy form of alluded to, ROBO is designed to be diversified, it is designed to be invested in one of the best of breed expertise firms globally throughout the ecosystem of the expertise. So what makes the robotic or automation work? After which the functions, the place is automation being deployed? Sadly, this drawdown, as everyone knows, has been considerably violent and excessive and has resulted in probably the most important drawdown we have seen. Even if 50% of the portfolio has what we see as an actual worth, that being uncovered to industrial automation, logistics automation, healthcare. To not point out, as Jeremie alluded to, that roughly round 60% of portfolio has a web money place and no debt. So these firms are nicely positioned to climate the storm, like they did throughout Covid.
And this business is importantly traditionally grown the highest line two to 3 occasions that of the market and we anticipate that to proceed. To not point out yr up to now, FX has been about an 800 foundation level headwind and the transfer within the greenback actually has been considerably parabolic and we predict there may be more likely to be a reversion of imply and there could possibly be a good tailwind as we start to maneuver into 2023 and past.
By way of the massive inventory strikes, we have had a pair fortunes to the upside, not sufficient in fact, iRobot was up 57% within the quarter, as a lot of you might be conscious, they’re a pacesetter in client robotics and so they agreed to be acquired by Amazon in an all money transaction for 1.7 billion. This does importantly characterize the twenty eighth takeout since we launched ROBO again in 2013. And whereas we will not forecast what the MA atmosphere’s going to appear like, a lot of our firms are, once more, leaders of their business. And as asset costs come down, we predict that they actually develop into extra favorable within the eyes of strategic and monetary patrons.
Luminar Expertise additionally had a good transfer to the upside. They’re a pacesetter in lidar expertise for automobiles and vans. The inventory was, I feel the efficiency was considerably supported by the conviction of insiders. The CEO did buy upwards of $6 million within the quarter. However importantly what’s actually shifting the inventory is their industrial success with bulletins. They introduced partnerships with Mercedes and Nissan, which intend to combine their expertise in most of their automobiles by 2023, or I am sorry, 2030. So we do anticipate to see extra progress right here on the industrial entrance.
Then by way of the sectors that we actually stay extremely convicted on, one space to spotlight is industrial automation. And an earlier touch upon that Jeremie additionally did is that industrial automation actually is firing on all cylinders to satisfy demand. And Yaskawa, which is a big industrial robotic producer, simply introduced not too long ago that their orders have been up 34% yr over yr. Fanuc, which is the most important industrial robotic producer, has been fairly vocal about their backlog, which now’s in extra of 1 yr. Importantly, Teradyne, which additionally performs a key function in industrial automation, has final quarter talked about their industrial automation development was up 29% yr over yr. We anticipate that to proceed after they announce their outcomes quickly. They’re one of many largest producers of collaborative robots by means of their buy of Common Robots, which is a Dutch firm. That enterprise has additionally actually been firing on all cylinders. That enterprise final quarter noticed robotic gross sales really up 30% on a 55% comp.
So enterprise actually stays fairly sturdy and wholesome. These asset costs are actually fairly attention-grabbing for traders to check out. And total, should you have a look at robotic density, and in order that’s trying on the variety of robotic installations per 100 folks, consider it or not, the worldwide common is just one.2 robots per 100 workers. And so now we have an extended method to go by way of the place penetration charges are going. Simply to place that in context, the US has roughly 2.5 robots per 100 workers. China can also be 2.5, however they’ve grown from 0.5 to 2.5 in 5 years. So fairly wonderful development there. Japan’s about 4, Germany’s 4 and Korea is 9.
So this all is within the context of a world atmosphere the place international manufacturing employs about 500 million folks globally. So if robots are stealing our jobs, they don’t seem to be doing an excellent job of it and we predict there may be important progress within the years forward. That is it for my ready marks. I assume I am going to cross it on to-
Moderator:
Thanks Invoice. Hey Invoice, earlier than we transfer on, now we have a selected query to ROBO from the viewers round why we embrace Nvidia however not Micron or Intel or STM. May you converse to that?
Zeno Mercer:
Certain. Hello. Hey everybody. Zeno right here overlaying THNQ right this moment. And okay, might you repeat that query? It was round possession?
Moderator:
Sure. So that they’re asking within the ROBO Index, we embrace Nvidia however not Micron or Intel or STM. So might you discuss concerning the distinction between ROBO and THNQ and the place these firms would fall?
Zeno Mercer:
Proper, okay. I feel the way in which we have a look at it isn’t solely, sure, these are all concerned in parts of form of fashionable society, robotics, AI, however we’re on the lookout for firms which have maybe probably the most funding or publicity to those areas. And I am really going to cowl in a video later, however I might say some issues now, at their latest AI day, they’re closely invested not solely within the chips however the software program aspect of issues. And at that time we think about them extra of an AI and robotics play. I imply, they’ve software program particularly for it and we simply have stronger conviction round it going ahead. Clearly firms like Micron are making large investments and are necessary to society, however we’re attempting to get publicity to particular areas and never simply make investments on the whole firms within the area. I imply, we are able to cowl extra later once I discuss extra about Nvidia for a bit.
Yeah, we are able to go to the subsequent slide. Reflecting on the quarter, the THNQ index was down 4%, really outperforming international indices and the S&P, and we’re down 47% since November 2021 excessive. So the AI area has been underperforming even whereas fundamentals have been bettering in some ways. And I am going to get to that. From a valuation standpoint, Ford EV gross sales are persevering with downward and so they’re really on the quarter finish, they’re at 4.6, which is beneath March 2020 lows. Even whereas adoption development, digitization and lots of large tendencies and tailwinds are coming, not solely now however 2023 and past. And we’ll cowl that. And a few of the large issues that occurred is we had earnings deceleration this yr right down to 11.2%. So total our firms grew, however this was down from 27.9% in 2021. Clearly it was a really large yr for income.
And the present forecast proper now’s a stronger rebound again within the low twenties for 2023, 2024. So proper now, I imply, this has been a tough yr. Individuals have been form of reorganizing and determining what strikes they are going to make, however sure areas of the economic system are seeing and have large backing for continued funding over the subsequent a number of years and quarters. So I feel it is necessary to suppose and know that AI is turning into an rising proportion of company authorities spend and it is also an enabler of GDP development and value financial savings. So there’s each development points and deflationary points which can be concerned right here and we’ll cowl that.
Subsequent slide. Yeah, so we really had, regardless of the index being down, we had outperformance, we had 79% beat prime line expectations and 85% beat earnings. And I feel round 87% are anticipated to be worthwhile subsequent yr. So should you’re interested by these firms, now we have excessive pricing energy, they’re crucial gamers to the economic system, whether or not it is funding spend from the Fortune 500 trying to digitize their merchandise or make new merchandise and even simply discover price financial savings throughout provide chain, operations, issues like that. And even simply utilizing AI as a core product and to extend the product improvement, whether or not actual world world merchandise or digital merchandise, options. So there’s developer operations, cybersecurity, numerous angles there.
Many firms even have raised steering within the index akin to Samsara, which really raised thrice this yr regardless of their very own provide chain issues. That is prime line and backside line. From large knowledge and analytics, we really noticed a standout from firms like Alter X, which is seeing 50% yr over yr development and 90% gross margins. And regardless of everybody being afraid of, oh, what is going on to occur with spend, and the place cash goes is shifting this yr, I feel we’re all seeing that. And Alter X is seeing their greatest pipeline in historical past for digitization automation of bringing in knowledge and determining what to do with it and discovering methods to streamline features with elevated labor price, inflation.
So these firms present very excessive ROI and that is why once we’re developing and reevaluating the index and rebalances, we’re taking a look at what firms are enablers proper now. And that is each the infrastructure aspect and the precise software aspect which can be really getting used right this moment. It is the provision and demand. And also you would not construct semi chips, there is not a purpose, and I am going to get to this subsequent, concerning the CHIPS Act, if there weren’t an necessary side coming down the road for that. And most of these chips, the chips being produced there aren’t going to be coming on-line till 2025 and past.
So we are able to really go to the subsequent slide now. I assume I already lined the outperformance right here, but it surely was, regardless of points within the economic system, it was a really sturdy quarter and we noticed fairly strong reassuring steering from many areas. I feel one of the vital troubled areas is on client, though our client index or the buyer sub sector and e-commerce have been one of the best performing this final quarter, they’d oversold in Q2.
So should you’re form of on the lookout for 1 / 4, I imply you are going to have shifts there, however that is why we even have publicity and make allocations of those completely different areas. Going to speak about Semi actual fast, I feel one of many greatest issues that occurred was two issues. A, we handed the CHIPS Act and we additionally had US commerce restrictions, Semi efficiency regardless of the CHIPS Act being handed, regardless of Europe additionally declaring they need to double manufacturing of Semi chip capability themselves, getting away from Asia manufacturing area, our Semi index was down 12%.
A part of it’s falling in lockstep with the economic system and every little thing else. A part of it’s form of overblown fears round what’s occurring with the China commerce restrictions and in addition round client, PCs, Cell. Apple introduced that they are going to not increase manufacturing of the iPhone 14. And now we have some publicity there, however total that is PC and private. In the event you’re speaking about cloud, AI, automotive and connectivity, which is the place we really attempt to allocate extra publicity to on that aspect of issues, on the infrastructure aspect, we’re really seeing sturdy demand and forecast. For example, Qualcomm, which is concerned in lots of, they’ve I feel $7 billion enterprise items. They’ve seen their automotive pipeline go from 19 billion to 40 billion in a single quarter. So the inflation discount act, all this stuff individuals are making, we do not have full EVs but, no less than within the sense that they don’t seem to be in every single place.
I imply, should you have a look at proportion of automobiles on the street, it is 0%, 0.001. Nonetheless, clever sensible automobiles that require extra processing, you have acquired EVs, they require extra semiconductor chips and processing connectivity and also you’re seeing a giant increase in demand spike there. So whereas we’re seeing a oversaturation in that phase, we’re seeing huge development. After which there might be one other improve cycle for wearables and issues like that, that that’ll come again on-line. However it’s form of smoothing out the method right here. And that additionally entails parts, sensors and pc imaginative and prescient.
By way of cloud demand, we’re seeing large pull by means of nonetheless. Arista, which makes networking switches and software program for these large cloud heart deployments from the massive tech firms and enterprise and others. They offered very strong steering in 2023 at their final name. So should you’re trying by means of the noise and seeing what’s an indicator of issues to return, it is continued funding on this area. And we have got a number of hundred billion greenback plus tailwinds coming by means of 2023 and past. And it could not be extra apparent how necessary it’s than if you get to the commerce restrictions.
However the CHIPS Act, simply to offer everybody an instance of how we have a look at the infrastructure area, they should make the semiconductors themselves, so you’ve Nvidia, Intel, Samsung, gamers like that. You even have firms like LAMB Analysis and ASML, which make essential parts to that. To make tiny three nanometer parts, you want very costly, very refined gear. I imply, it is a few of the most spectacular tech now we have on the planet proper now. Every of those gadgets although have a few years pre-order, there is a backlog, and so they run $180 million per pop for ASML for instance, it is a Dutch primarily based firm.
As a proportion of spend, okay, to illustrate there is a $50 billion Chips Act and tons of of billions coming on-line in manufacturing within the US for instance, not even speaking concerning the EU, one $17 billion plant in Texas, $10 billion of that’s going to semi manufacturing gear. So simply to offer you a scale, and I do not suppose the market’s actually reflecting that, semi’s useless, lengthy dwell semi, individuals are like, “Oh, PC, gaming,” there’s a lot approaching board. I feel that is one thing to remember if you’re sitting right here interested by what’s comfy and what’s really going to get cash within the subsequent couple of years.
China restrictions, Nvidia, Nvidia’s had a tough yr, gaming’s down after which the China commerce restrictions have come on board. They are not set to begin for some time till subsequent yr, 3Q subsequent yr. And it really leaves them with some wiggle room. So it is not essentially they cannot promote into China, they simply cannot promote particular chips and issues. Really rumors are saying that they are really getting a variety of orders and individuals are stockpiling proper now. So take that as you’ll. However I feel in the end it simply reveals how necessary these are and that there is going to be elevated emphasis and funding right here.
One other factor I needed to speak about briefly is the Tesla robotic. That was a fairly large deal for a lot of, within the sense that it introduced consideration to the area. Elon has that impact. He centered on EVs, he principally made the EV market. Robots although are already a giant market, clearly that is why you guys are all right here is attempting to grasp and listen to that and from our angle. So what I feel goes to occur right here is A, client robots have very low penetration. In reality, it is principally null. You do have extra automation in semi and automative and manufacturing, but it surely’s one other market that basically is not being appreciated is the robotic area and AI area having the ability to visualize and principally, they should function within the digital world to have the ability to function within the bodily world. That is going to take elevated computation and funding in cloud, AI, connectivity.
So I feel that is the takeaway there. I do not actually need to make a projection on when will Tesla robotic be in folks’s houses if it’s going to, et cetera. However I feel it is simply one thing to remember.
Yeah. So talking of latest issues, we have got a brand new addition. We added CrowdStrike this quarter. So CrowdStrike for individuals who do not know, is an American cybersecurity firm that was based in 2011. That they had their first product in 2013. They have been on a roll right here. We have been watching them for a while and so they’ve actually confirmed resilient. And once we’re interested by making an addition to an index, we have a look at quite a lot of issues, We have a look at their market and expertise management and we additionally have a look at what are they investing in, have they got a pipeline of merchandise which can be going to proceed to make them acquire market share and increase their addressable market.
Proper now they have been rising, their 5 yr development fee is 94% anticipated to hit 1.5 billion this yr and a pair of.2 billion subsequent yr. So their AI enabled cybersecurity options are trusted worldwide, with a TAM addressed estimated to be $75 billion and that is rising to 125 billion with new merchandise. They’ve a 97% retention fee and so they turned worthwhile in 2021. So this is not just a few development story. Their EPS is projected to develop 50% over the subsequent a number of years. Going again to funding, they’ve 25% of their income investing within the R&D and in merges and acquisitions. They’re making sensible acquisitions, they’re investing, we’re very assured that they are going to proceed to be a pacesetter in AI enabled cybersecurity.
At this level, I am going to cross it on to Jeremie to debate our healthcare index.
Jeremie Capron:
Okay, thanks Zeno. So HTEC is the healthcare expertise innovation index that we launched in 2019. And in the previous few years we have seen the convergence of robotics, AI and life sciences that has enabled some breakthrough advances. And we consider that healthcare is the one large financial sector that is going to be profoundly remodeled by expertise over the approaching decade. And so we construct the HTEC index utilizing an identical recipe to the ROBO index. Which means the index portfolio consists of one of the best at school firms from around the globe which can be reworking the healthcare business throughout 90 areas which you could see on this pie chart. So there’s robotics, which is about robots within the working room, within the pharmacy, in hospitals and so forth.
And you’ve got knowledge analytics, which is about firms utilizing software program to derive insights from the info that we now accumulate round sufferers. The information from scientific trials, the info from medical imagery and AI is more and more utilized in diagnostics and drug analysis and automating, or it is extra about augmenting the work of clinicians, augmenting the pace and accuracy of a diagnostic. After which you’ve telehealth, which is about decentralized drugs, like distant physician affected person visits that we’re now all aware of, but it surely’s additionally about wearable gadgets for the monitoring of glucose ranges or cardiac exercise and so forth.
You may have genomics in fact with firms offering the instruments to decode the genome and corporations growing early most cancers detection options. You may have firms with gene enhancing expertise and even artificial biology the place we create artificial genes. After which lastly you’ve a number of medical and surgical devices like 3D printed implants, you’ve coronary heart pumps, miniature coronary heart pumps, neurovascular instruments and so forth. So it is a fairly numerous basket of at present 78 firms, large and small.
In reality, practically half of the businesses within the portfolio are small and mid caps, however they’ve one factor in widespread, which is expertise and market management of their respective sectors. And on the subsequent slide you’ll be able to see that the portfolio carried out very nicely in 2019, 2020 and 2021 earlier than that form of indiscriminate promoting primarily minimize in half. And so the HTEC index has now declined 50% from its excessive of February 2021. And within the meantime, the income has grown by greater than 30%. So income grew by 22% final yr. And this yr we’re going to see an extra 12% and subsequent yr we’re taking a look at 10% gross sales development, 2023. So HTEC is now buying and selling on 3.9 occasions ahead enterprise worth to gross sales. That is on the median for the basket. And that compares to the excessive yr of seven.2 occasions and the low within the Covid lockdown panic, that was 4 occasions. So we at the moment are beneath the Covid lows by way of valuations and I feel that is a very necessary level to remember.
So I need to contact on a few of the firms right here so that you get a greater sense of what is within the portfolio. And I’ll begin with a few of the prime performers through the quarter. You possibly can see Butterfly Community’s right here, that was up over 50% prior to now three months. So Butterfly’s in our diagnostic sector and it has developed the IQ ultrasound answer, that is an ultrasound system that’s 80% cheaper than conventional gadgets. It is small, it really works with smartphones and tablets and has a software program platform that’s subscription primarily based. So that they’re increasing entry to ultrasound primarily based analysis dramatically. And it is rising very quick, about 30% per yr, with margins above 50% on the gross degree. So Butterfly has $300 million within the financial institution, so loads of room to proceed to scale and in the end we predict it is a very doubtless acquisition goal.
After which Penumbra right here, Penumbra is an organization in our medical gadget sector. They’ve developed very progressive surgical devices for neuro and vascular circumstances. So it is about stroke remedy and eradicating clots and thrombectomy and coiling programs. And Penumbra’s tech is superior to the normal stent method, in order that they’re additionally rising quick, like 15, 20% a yr. They usually have higher than anticipated margins after they reported and so they’re speaking about accelerating development and procedures into the rest of the yr. They’re making aggressive positive factors. Additionally they have quite a few merchandise arising over the subsequent 18 months.
And AxoGen, you’ll be able to see right here, which was up greater than 40%, that is in a regenerative drugs sector. AxoGen has developed an answer to restore the bodily harm to nerves, peripheral nerves. And they also’re in a position to restore feeling and performance of nerves. Mainly it is a nerve graft and it is the one off the shelf human nerve allograph available on the market. And AxoGen additionally had higher than anticipated income final quarter. And the administration commented that they anticipate the gross sales development to return to mid teenagers by the tip of the yr.
And at last, I needed to the touch just a little bit on genomics and precision drugs, which collectively account for a few quarter of the portfolio. And you’ll see on this slide some examples of firms in HTEC, a few of the expertise and market leaders which can be actually powering the genomics business. And we predict genomics is completely a revolution and it is occurring now. It is a revolution as a result of genomics permits a completely new method to drugs and the early detection of illness. It isn’t solely hereditary illness but additionally continual illness like most cancers. And since it additionally permits customized remedy, customized remedy which means individualized remedy versus the present mannequin of massive pharma the place you’ve a one dimension suits all form of molecule that price billions of {dollars} to convey to market. Right here we’re speaking about therapies which can be tailor-made to the person.
And the explanation why this revolution is going on now’s as a result of we now have reasonably priced gene sequencing expertise and the price of sequencing the human genome is declined dramatically from billions of {dollars} with the primary human genome undertaking a long time in the past to now below $1000. And if there’s one firm that is been main the cost by way of driving down the price of gene sequencing, that’s Illumina, which is the market chief. They’ve greater than 20,000 machines put in worldwide. They’ve greater than 75% market share globally. And final yr they grew income by 40%. And about two weeks in the past they launched the brand new NovaSeq X, which is the brand new sequencing platform that might take sequencing prices down by greater than half to just some hundred {dollars}. And the final time we noticed such a big price decline, that drove fivefold enhance available in the market dimension for genomic sequencing.
And that is what permits genomics testing. And I discussed the early detection of the illnesses like most cancers. So Natera for instance, is the market chief in prenatal DNA testing. They’ve a non-invasive check for abnormalities and Natera is now pushing into most cancers screening and implant rejection testing as nicely. Veracyte, that is one other firm that is reworking the diagnostic of most cancers utilizing DNA expertise. They’re working in thyroid and lungs and breast most cancers testing. They’re rising the accuracy of diagnostic and avoiding pointless surgical procedures for sufferers.
And I additionally spotlight Twist Bioscience right here. Twist is the chief in DNA writing. So it is the synthesis of genes which they do with a silicon chip to fabricate wide selection of artificial DNA at a low price. They now have hundreds of shoppers together with pharma firms, together with analysis facilities, but additionally industrial firms, chemical firms, agricultural firms.
And at last I need to contact on Alnylam. Alnylam is an effective instance of precision drugs and individualized remedy. They pioneered the RNA interference therapeutics, we name that RNAI. They usually simply obtained their fifth approval in lower than 4 years for the remedy of polyneuropathy illness referred to as ATTR. And this remedy that they are arising with might attain billions of {dollars} in gross sales. So if you evaluate that to the market cap of Alnylam right this moment, there’s I feel attention-grabbing discrepancy.
So in complete there are 18 firms in our genomics and precision drugs phase and so they account for round 25% of the HTEC portfolio. And I hope you perceive that there our portfolio building course of right here is de facto about diversification, offering publicity not solely to small areas like genomics, precision drugs, however to all areas of the healthcare business the place expertise is making a distinction.
All proper, so I will pause right here. I feel we have lined a variety of floor, I actually need to take a few of your questions and I see now we have a query about earnings trajectory for our portfolios. What’s the anticipated earnings development for this yr and subsequent? And I feel we are able to begin with ROBO. I am going to touch upon ROBO after which Invoice and Zeno can touch upon the opposite portfolios. However primarily we predict we’ll shut 2022 with about 15% EPS development for ROBO. So final yr we had greater than 40% EPS development. This yr we’re nonetheless taking a look at 15, which is considerably forward of what you’d anticipate for the S&P 500, notably should you exclude the power sector from the S&P 500. We’re principally taking a look at a compression in EPS for this yr for the broad market. For ROBO, it is 15%. And for subsequent yr, we’re taking a look at about the identical, so 15 to 17% is the anticipated EPS for ROBO in mixture for subsequent yr. Zeno, do you need to touch upon AI?
Zeno Mercer:
Sure, Hello. Yeah, so by way of EPS development for the THNQ index and its members, I am going to form of cut up it into software and companies and the infrastructure part. Infrastructure has been a bit smoother this yr and we noticed 29% EPS development in 2021, this yr we have seen and projecting for the total yr, 22%. So a slight pull down. On the flip aspect on software and companies, we noticed 29% final yr and seven.9% this yr, with eCommerce and client being the largest laggards. However that is anticipated to rebound within the following yr respectively, client and e-commerce to 25% and 64%.
And I feel trying 2023 and past, the projections are taking a look at 11.6 this yr. General THNQ index is trying to get again into the twenties development for EPS, so 20.4 after which even greater clip in 2024 and past. I feel a few of the standouts inside that might be community and safety, which is rising at 49% this yr and anticipated to nonetheless keep higher twenties, low thirties subsequent yr. So that you’re seeing some rebound in some areas and others are simply going to see continued power for EPS.
Invoice Studebaker:
Jeremie, simply to fall on to your feedback, possibly nearly revenues for ROBO, I feel importantly, that is form of the elephant within the room, everybody thinks there’s going to be a reasonably dramatic discount in estimates. Clearly we have not seen that occur. That may be a threat. Income development ROBO is basically anticipated to be about 13% this yr and subsequent yr just a little over 8%, which is in step with its historic averages. So even when there may be stress from the broader markets, we do anticipate our indices to typically develop two to 3 occasions to that of the market, which traditionally they’ve. So we really feel fairly good about the place these companies are positioned as we go into 2023 and past.
Jeremie Capron:
Okay, thanks Invoice and Zeno. And I see now we have a query about potential ESG points with the genome oriented firms, particularly governance considerations. So right here at ROBO World, we take ESG very severely. We launched our ESG coverage in 2017, so occurring 5 years now. And we have improved the coverage constantly over time, primarily given the pool that we had from a few of our European traders. And so the coverage right this moment is extraordinarily full and you will discover all the small print on the web site and it is actually centered on excluding firms that fail sure requirements that we have established in step with the Febelfin requirements over in Europe. It is one of many strictest requirements. So we have a look at environmental efficiency, governance and social points in fact. We use our personal inner analysis to guage each firm that is in our funding universe, however we additionally use exterior help from maintain analytics that helps us flag any potential points or controversies as they come up.
Now by way of query across the genome, I feel it is an space the place we’re seeing a variety of debate, whereas is not any debate is round utilizing genomics for early detection of illness as a result of the idea right here is that you’ll be able to choose up a illness earlier than it turns into an infinite drawback by way of your skill to treatment, in fact, and your likelihood of survival, but additionally by way of the associated fee to the healthcare system. And so there appear to be unanimous view throughout the business and coverage makers round the truth that genomics in diagnostics is a no brainer. And so we do not anticipate any points there. The place some points might doubtlessly come up I feel is round gene enhancing as a result of right here we’re making modifications into the human DNA. In lots of instances we’re making modifications into cells in order that it might probably produce particular proteins and proteins that can assist battle towards a illness.
And it’s nonetheless very early days. Right this moment there is no FDA permitted gene enhancing primarily based remedy. However in 2020 we noticed the primary dosing of a human affected person with such an method and we had some pretty promising outcomes with that and that is why you have seen the gene enhancing shares carry out very well in 2020 and first half of ’21. Now they’ve come down a good distance, however I feel that is the place we have to pay just a little extra consideration.
And the final remark I might make round that’s that clearly we have seen a change within the trajectory on the FDA by way of how briskly they have been approving gene therapies and cell therapies. So for a very long time till I might say round 2019 or so, there was reluctance by the FDA to quick monitor this analysis. However right this moment it has been a transparent acceleration and whereas there’s solely a handful of gene and cell therapies permitted available in the market right this moment, there is a backlog of a number of tons of of these at present in scientific trials. And so we anticipate the raft of approvals over the subsequent a number of years.
So I will cease right here once more, if you wish to convey up any questions, please sort them into the Q and A field. There is a query concerning the autonomous system, sub sector, I feel Invoice, you may need to take that. It is at present at 0%, was considerably larger than that, Invoice, you need to give some coloration.
Invoice Studebaker:
Yeah, that is proper, it’s 0% proper now. And we did have one constituent in there, which was iRobot, clearly taken out. And simply because an organization is faraway from an index, we do not mechanically simply put one thing in, as Jeremie talked about within the earlier a part of the presentation, we’re trying to establish firms that we predict are leaders of their business, firms which have a technological mode round their enterprise, have dominant market shares. In order that’s a very necessary standards for what we’re on the lookout for.
And we do anticipate the buyer sector to start to evolve. Clearly we’re fairly enthusiastic about Tesla’s ambitions right here and I feel as the value factors come down, because the use instances broaden, I feel we’ll see a pure evolution within the client sector, however we have not had a variety of progress there but. With regard to your query, I assume you have been commenting about Group Gorge and one other entity in Spain. Once more, I feel the necessary attribute about what we’re attempting to do at ROBO is put in leaders within the business. Whereas these firms might have some ambitions in robotics, they’re clearly not getting there but. Group Gorge in France specifically, not solely would we query their market share in technological management, there’s a liquidity difficulty for firms to go in our index, they should have a minimal market cap and minimal liquidity per day. And each of these firms would fail these screens. So I do not, Jeremie, some other ideas, however that is.
Jeremie Capron:
Invoice, there’s one other query about FX attribution for ROBO yr up to now. I do know you touched on that earlier. Do you need to repeat that?
Invoice Studebaker:
Yeah, clearly it has been a giant headwind. It has been round 800 foundation factors since we launched yr up to now, it is most likely about 12, 1300 foundation factors since we launched in 2013. So we have really absorbed that fairly nicely, we actually would hope that that might develop into a tailwind. There have been years the place FX has been a tailwind and whereas we will not anticipate that, we actually do not hedge for it. And we predict over time there’s a reversion in imply that sometimes occurs in foreign money markets. And on condition that the way in which the index is constructed, we’re attempting to establish firms that we’re detached to the place they’re positioned. It simply so occurs about 45% of our index is in North America and about 55% internationally. And once more, an important attribute for us is defining who the market leaders are, business leaders, expertise leaders, and we’re detached to what we area they’re in.
Jeremie Capron:
Okay. We’ve got one final query concerning the turnover that we see within the index. I will take that. So primarily the turnover comes primarily from the quarterly rebalancing. The index itself is fairly steady by way of the constituents. Now in fact the weightings can change on the margin because the scoring evolves, so we rating each firm in our analysis universe and the rating drives a legibility into the portfolio and to some extent the place dimension.
Scores evolve every time the analysis workforce interacts with the corporate or there is a company motion, there’s new details about market management or expertise management. Additionally the income publicity to the issues that we’re going after, the scores will transfer, however the major driver of turnover is de facto the rebalance when each quarter we return to that rating pushed weighting. And in order that drives about 25 to 35% turnover in a typical yr, so 4 rebalances per yr. However the modifications by way of constituents actually should not that significant. In reality, each quarter you may sometimes see one or two new inclusions or exclusions on the basket of about 80 firms. That is the place the turnover comes from.
Zeno Mercer:
I am going to add one thing to the THNQ index actual fast. Considering by means of THNQ, now we have 71 index members and this previous quarter we had 4 takeouts, one addition. Final yr we had 5 – 6 takeouts from M&A alone. And one of many takeouts was iRobot, which was additionally within the THNQ index. There’s not that a lot overlap, however that was one, it was in AI and ROBO play. So I simply needed so as to add that we’re making strikes there. And I feel what we have thought of loads recently is simply because the entire market is down, we’re trying to ensure we seize the businesses which can be strong and never simply following in tandem, however we’ll be sure that they are going to develop market share, have invested correctly, have resilient management going ahead and to the subsequent quarter and past. So. Yeah.
Jeremie Capron:
All proper. Nicely, I feel we’re occurring the hour, so I need to thank all people for becoming a member of us right this moment and remind you which you could join a biweekly publication on the web site roboglobal.com, the place we share a few of our analysis and insights into firms and sectors, robotics, AI, and healthcare expertise. And we very a lot look ahead to chatting with you once more sooner. Thanks.
