By Bill Studebaker, CIO & President, ROBO Global
2020 was undoubtedly a year to forget for people around the globe thanks to the initial onset of the pandemic and the health and financial shockwaves that followed. In a world where everything is relative, 2021 was a far cry better, bringing us much more positive news, as well as reasons for hope that we will soon defeat this virus. Thankfully, the stock market reflected that sentiment, closing the year on a high note even as a new variant of the Covid virus loomed large.
While December did not deliver the full-blown Santa Claus rally that investors had wished for, the Dow Jones and S&P 500 did close at historical highs in the final week of the year, punctuating a positive recovery from the broader market sell-offs a few weeks earlier that were fueled by Omicron fears and hawkish central-bank stances. For the month of December, the ROBO Global Robotics and Automation Index ETF (ROBO) rose 3.33% to close the year +15.34%; the Robo Global Artificial Intelligence ETF (THNQ) declined 2.25%, finishing up 2021 +9.10%; and the ROBO Global Healthcare Technology and Innovation ETF (HTEC) rallied +1.75% to finish the year virtually flat -0.28%.1
Though the markets have already exhibited a level of buoyancy in the first days of 2022, this environment remains precarious for global markets as the US and larger cap companies with scale continue to lead performance. Investors appear to be viewing the situation from two distinct perspectives. The Bulls argue that we are on the cusp of an endemic, paving the way for business and economic recovery. They point to strong consumer balance sheets and earnings growth/margins that are well supported by corporate pricing power which (they hope) will lead to consensus EPS growth for major indices globally. On the flip side, the Bears are bracing for a correction due to above-trend valuations. They argue that the markets are overextended, that current levels of consumer demand are unsustainable and likely to come down, and that the combination of inflation and a Fed pivot will contract margins and create a significant headwind to corporate growth. Who is right? Though attempting to predict tomorrow’s market weather is a fool’s game, the ebbs and flows of conviction around valuations, positioning, and fundamentals have consistently returned to two driving forces: Covid and inflation. Knowing that this framework is likely to stay with us for some time, investors in both sides of the argument are now seeking the same thing: greater diversification.
The importance of diversification loomed large in 2021 as investors struggled to keep up with index-level returns in the face of a negative alpha2 between longs and shorts, with crowded shorts outperforming longs thanks to the early pain caused by ‘meme shorts,’ and with sectors like Energy and Banks (two areas where most active investors were under-exposed) clearly leading the long side. For much of 2021, dispersion was driven by sector rather than stock selection. At the same time, China regulatory concerns weighed down a segment of the market that has historically provided meaningful single-stock alpha.
At ROBO Global, we see diversification across the global value chain as strong armor against many of these short-term constraints, and we believe that the most promising components of that armor are the lesser-known robotic and automation technologies that play a pivotal role in enabling today’s most valued capabilities.
As we have maintained throughout 2021 (and for many years prior), disruptive technologies like robotics, AI, and healthcare innovation are responsible for driving innovation, changing business models, and transforming industries. Stepping across the doorstep of 2022, our conviction is stronger than ever. Investors have now had a few weeks to digest the news about Omicron and assess the implications of tighter financial conditions resulting from this new strain of the virus, and many remain cautiously bullish. We are excited and optimistic that the companies included in the ROBO Global suite of ETFs will potentially help reward that bullish perspective.
1 Source: ROBO Global®, S&P CapitalIQ, For standardized performance data current to the most recent month end, please visit www.roboglobaletfs.com.
2 Alpha refers to excess returns earned on an investment above the benchmark return.
The performance data quoted represents past performance and does not guarantee future results.
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 funds or any security in particular. Diversification does not ensure a profit or guarantee against a loss
ROBO Top Ten Holdings, HTEC Top Ten Holdings, THNQ Top Ten Holdings