By Bill Studebaker, CIO & President, ROBO Global
As another month of 2021 comes to a close, I can’t help but feel excited about the return to normalcy. If you had told me a month ago that I would be high-fiving with friends at a baseball game in June, I would have called you a bit ambitious. It’s one case when I’m more than happy to be wrong. Today, I am thrilled to see mask mandates coming to an end around the globe. Restaurants and other businesses are finally returning to business as usual, and yes, sports are back! Even in hard-hit NYC, it’s now clear that the city is slowly but surely springing back to life. As some would say, nature is healing, and boy does it feel good.
What we’re witnessing is a great illustration of human resiliency, and the month of May proved that the market is equally buoyant. Despite plenty of turmoil due to the persistent ‘wall of worry’ on rates, the challenges of re-opening the economy, the real potential for higher taxes, and the Fed’s plans to taper, it was impossible to keep a good market down. There was pain and volatility1, but in the end, all major global indices finished the month positive. While the ROBO Global ETFs fell short for the month, with ROBO -1.22%, THNQ -3.10%, and HTEC -3.08%2, we anticipate a reversal as the post-pandemic recovery begins to take hold and to drive up demand across the landscape of robotics, automation, and healthcare innovation.
At this point in the recovery, the main question for investors to consider is ‘what is transitory and what is permanent?’
One trend we continue to see as permanent is the push toward automation. Even as COVID stopped businesses in their tracks, the need for automation accelerated, and it is now gaining momentum in all areas of the economy. One case in point is Ambarella (AMBA), the ‘system on a chip’ provider and emerging AI player. AMBA reported fiscal first-quarter earnings that beat expectations and raised its full-year comparable sales guidance3—despite concerns around the company’s supply constraints due to its dependence on the Samsung foundry that was affected by the Texas outage. Importantly, the company said it expects Automotive to grow >100% this year thanks to numerous new design wins and interest resulting from the Shanghai Auto Show in April. Most notable was U.K.-based electric vehicle maker Arrival’s selection of Ambarella’s CVflow AI vision processor to enable Level 2+ autonomy in its passenger buses and more than 20,000 UPS delivery trucks. This competitive win against INTC Mobileye is just one good reason for the company’s optimism.
Another reason for the positive outlook is the general recovery of the Automotive sector, which has become a key driver for AMBA this year. Most semiconductor suppliers are now tracking to 25%+ growth, and AMBA’s expectation of 100% growth indicates very strong product-cycle momentum. Sales of automotive offerings (including video recorders, aftermarket dash cams, surround-view systems, digital rearview mirrors, forward-facing driver assistance, and driver monitoring) should bring automotive revenues up to above 30% of revenues in FY20214.
The question of ‘what is transitory and what is permanent’ must also be applied to the thing that’s been keeping many investors up at night: inflation. The macro crowd will argue that inflation is here to stay, while the Long/Short community (which is still widely invested in tech) sides with the FOMC, agreeing that current inflation is due primarily to supply chain bottlenecks, not structural shifts. No one has the answer, but we should have a better sense of the outcome toward the end of the year once global supply chains have had time to remedy any temporary glitches.
One also has to wonder whether changes to companies’ bottom lines are transitory are permanent. With many companies having benefitted from cost cuts and scaling of their businesses during the pandemic, how many are ready to return to business as usual? Which ones will be able to weather the return to a ‘new normal’ of higher operating costs—both on the input side and on wages that have seen upward pressure? It remains to be seen. But as a true believer in the power of robotics, automation, and AI to accelerate growth, I can’t help but think that companies that have spent the last 12 months focusing on innovation will be the ones that rise quickly to the top.
ROBO Top Ten Holdings. THNQ Top Ten Holdings. HTEC Top Ten Holdings.
The performance data quoted represents past performance and does not guarantee future results.
Sources:
1 Volatility is the degree of variation of a trading price series over time, usually measured by the standard deviation of logarithmic returns.
2 Source: ROBO Global®, S&P CapitalIQ, For standardized performance data current to the most recent month end, please visit www.roboglobaletfs.com.
3 Source: Ambarella
4 Source: Morgan Stanley