By Bill Studebaker, CIO & President, ROBO Global
What a start to the year. I find it quite remarkable how quickly—and drastically—investor perception of the economic landscape can change. I can’t help but think of these recent moves in equities as reminiscent of a golfer trying to fix their swing in the middle of playing a round. And even though I know the facts, I remain perplexed by the sheer extent of the shift. What actually happened to move the needle on investor sentiment so dramatically? Sure, the Fed’s hawkish policy stance was a major catalyst, but there seems to be too much beneath the surface to believe that it was the only thing that turned things upside down. Valuation clearly played a role, too, as investors opted to reevaluate what price they are willing to pay for growth against longer duration1. Importantly, this reset in valuation gives investors a much more favorable opportunity to achieve the goal of higher returns.
Whatever the true cause, the result wasn’t pretty. For the month of January, the ROBO Global Robotics and Automation Index ETF (ROBO) fell -11.45%; the Robo Global Artificial Intelligence ETF (THNQ) declined -11.67; and the ROBO Global Healthcare Technology and Innovation ETF (HTEC) dropped -13.71% (market price)2. While there could certainly be further downside from here, I remain optimistic as this broader re-rating of stocks provides some attractive entry points for some fallen stars. I also see the outlook for growth as more constructive than this sell-off would likely suggest, and that it may be enough to absorb upcoming tightening conditions. Consensus expectations for 9% Earnings Per Share (EPS)3 growth in 2022 and 10% in 2023 for the S&P 500 paints a constructive fundamental outlook for equities, and our innovation ETFs compare quite favorably. Median EPS growth estimates for ROBO stand at +16.5% for 2022 and 14.5% in 2023, THNQ is projected to tick up +13% in 2022 and 18% in 2023, with HTEC following close behind at +8% in 2022 and +11% in 20234.
In the aftermath of January, investors are now debating whether there has been a durable bounce off the correction-level drop of 10% across most major US indices, as well as the extent of the de-risking and capital destruction that lies below. More bearish investors argue that this is simply what bear markets look like when volatility takes hold; the tremors and shocks are to be expected when the markets shift lower. Valuations aren’t the only thing being questioned. Positioning and fundamentals are also on the table, as well as whether the reset in some of the frothiest aspects of the market were healthy and necessary, and if the Fed’s action provided a ‘clearing event’ or the rates scare is something more sinister leading to an inevitable and acute growth scare. Recent price action seems to indicate that the shift towards more cautious sentiment is likely to continue amid concern that Fed tightening could come at the same time as a growth slowdown.
Internationally, the downward pull seems less extreme. At least for the moment, Europe is displaying lower inflation compared to the US, and stronger labor participation supports a more dovish stance. In China, easing regulatory concerns and a potential re-opening post-Omicron could support a strong recovery for the region. After what seems to have been a long decade of outperformance in the US versus the rest of the world, could we be at an interesting tipping point? If this does happen, investors are likely to seek alpha5 by de-risking and rebalancing exposures across the US and globally—an event that we believe could surely benefit the globally diversified exposures of the ROBO Global ETFs. This market reset surely will not stop the shift to ubiquitous automation.
1 Duration is a measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates (Source: Investopedia)
2 Source: ROBO Global®, S&P CapitalIQ, For standardized performance data current to the most recent month end, please visit www.roboglobaletfs.com.
3 Earnings per share (EPS) is a metric investors commonly use to value a stock or company because it indicates how profitable a company is on a per-share basis. (Source: The Motley Fool)
4 Source: ROBO Global®, S&P CapitalIQ. This is not a forecast of the fund’s future performance.
5 Alpha is a term used in investing to describe an investment strategy’s ability to beat the market, or its “edge”. (Source: Investopedia)
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