By Bill Studebaker, CIO & President, ROBO Global
If you had taken the month of January off and gone on a well-deserved vacation away from the markets after a tumultuous 2020, you would be rather unimpressed with the change in dynamic at the index level upon your return at the end of the month. For all the craziness we saw across the markets—and, indeed, across the world—YTD, most of the indices ended up just a few points ahead or behind of their starting points: iShares Russell 2000 Index +5.00%, iShares MSCI ACWI Index -0.45%, and S&P 500 Index -1.17%. While the THNQ ETF advanced in that same small range (+2.35%), I’m happy to report that this was not the case for the ROBO ETF, which was up 5.86% or the HTEC ETF advancing 8.19% in January.*
What’s driving the current market stagnation? And why is ROBO outpacing the norm? To understand the situation, we need to look beyond the headline numbers and dig below the surface.
One constant has been an overall increase in volatility**. Wednesday, January 27th’s move came on the heels of the highest equity volume day recorded since 2008, with 23.5 billion shares traded. It was the first-ever reading over 20 billion for that period. It seems ‘animal spirits’ (that were surely ‘fed’ by the Reddit army) reached a crescendo, leaving real institutional P/L pain in their wake, as heavy short positions in illiquid small-cap names were dramatically squeezed. Extreme levels of de-grossing began on Monday, largely due to short covers, and continued to escalate rapidly. By the 27th, longs were also taken down in significant amounts.
Luckily, the majority of the constituents in the ROBO indices were not affected by the drama. Case in point: the 3D Printing stocks in the Robotics & Automation Index have been on a tear in the past three months, and last week of January’s turmoil did nothing to stand in their way. On the contrary, 3D Systems more than quintupled in value, and Stratasys more than tripled. Belgium-based Materialise, whose software solutions form the backbone for 3D printing systems and medical applications, jumped more than 50%, gaining a new grip on the strong growth trajectory it had established prior to the COVID-19 downturn. Other sectors that delivered strong growth for the ROBO portfolios in the month included Consumer Products and Security.
So where do we go from here? Many experienced investors are banking on the expectation that the market will simply gaze through this past week as an oddity—a technical selloff created by a large group of undisciplined investors—and continue to discount a steadily improving macro environment. As for the Bulls, they remain emboldened on the back of positive prints and high hopes for the imminent re-opening of the economy thanks to a more organized and systematic rollout of the COVID-19 vaccines. In other good news, the vaccine outlook became even more positive with promising news on the Johnson & Johnson’s single-dose vaccine; Fed Chair Powell continues to indicate he’s not even “thinking about thinking about” scaling back monetary support; another round of stimulus also likely on the way from our friends in Congress; and some of the best quality growth stocks are looking cheaper by the day. Yes, things really do appear to be looking up!
With all of this in mind, expect this year to be all about stock picking—especially as we move past the near-term volatility to a place where fundamentals and dispersion become more relevant. So far in 2021, both the growth and value/cyclical crowds have had reason to be confident that tailwind effects are on their respective sides. No matter how the twists and turns eventually play out, we see the wisest investors continuing to focus on what we believe to be the inevitable growth and consistent trajectory of robotics, artificial intelligence, and healthcare innovation.
*All Data is Sourced from Bloomberg
** Volatility is a statistical measure of the dispersion of returns for a given security of market index.
Past performance does not guarantee future results. Indices are unmanaged and do not include the effect of fees. One cannot invest directly in an index.