Turnkey Tech Investing: May 2022 Market Brief

    By Bill Studebaker, CIO & President, ROBO Global

    The financial markets have had investors on high alert since the start of the year. Is the tide finally turning?

    It does seem possible. While investors may not be sailing through smooth waters quite yet, last week finally provided a much-needed sigh of relief, with the S&P 500 and Nasdaq 100 finally snapping a 7-week losing streak, and the MSCI World Index1 rallying +5.5%. In the bigger picture, the excess in the financial markets that drove an extreme level of bullishness has been corrected. Though these necessary corrections are always painful in the moment, we see this as a positive. Across the ROBO Global ETFs, we began to see correlations change and performance stabilize. The ROBO ETF gained +0.77%, while the HTEC ETF declined -1.79%, and the THNQ ETF fell -5.77%.2

    For bulls looking to call out the bottom, there’s also an argument to be made that a long list of macro-overhangs may have already been properly discounted. The war in Ukraine seems to have taken a turn in favor of Ukraine in recent weeks, leading to hopes Russia may soon be pressured to negotiate a peaceful end. In the US, despite the potential risks of the Fed marching forward with higher rates and quantitative tightening (QT) to curb inflation, at the margin, things have seemingly improved: the 10 year yield has contracted meaningfully from its multi-year high earlier this month, and though stocks continue to bounce, the general trajectory seems to be higher rather than lower. And with many retailers reporting elevated inventories and potentially weakened consumer demand over the past two weeks, there is hope that the aggregate deflationary effect may even help normalize inflation and spare the Fed from delivering as many hikes as planned in the months ahead.

    Even as IPOs and special purpose acquisition company (SPAC) deals have stalled over the past couple of quarters in the face of a drop in public equity valuations, M&A and startup funding in robotics, AI, and healthcare technologies has remained robust recently as seen through five constituents of the ROBO Global Innovation Indices receiving takeout offers in the month of May. The race to digitize and automate is on. For many business leaders and companies around the world, automation is one of the top priorities as they strive to thrive in the face of tighter margins, stronger competition, and a challenging economy. Larger organizations are increasingly focused on building strength through automation, and in many cases, they are behind the curve. To move quickly, these organizations might acquire rather than build, and they are clearly ready to pay the price for quality businesses and the automation technologies that provide.

    While this is a structural trend in our view, the massive shift in the financial markets in the first half of the year has clearly changed the dynamics in terms of capital deployments. In just six months, we have moved from being in the Goldilocks state of strong economic and profit growth to finding ourselves swimming in one of the most complex macro situations in decades. Even deep in these murky waters, however, tech is where the action has been concentrated since early 2022. The most highly valued and speculative segments of the markets have seen a dramatic collapse. In other areas of the market, the surprising gains of the pandemic have been given back—and then some. Despite their headline-winning names, Zoom, Peloton, and Robin Hood3 aren’t the only companies that have suffered. In fact, nearly half of the NASDAQ stocks are down 50% or more today from the high, and more than one in five stocks is down more than 75%—a drop that is comparable to the dot-com crash in 2000. FANG4 shares are down more than 35% on average year to date. That decline mirrors the shift in our own strategies, which are down between 28% and 32% YTD, qualifying as the sharpest drawdown we have seen since we started ROBO in 2013.

    The good news is that it seems the valuation reset has largely played out. Already, that reset is leading to better opportunities for investors. As Franklin D. Roosevelt once said, “A smooth sea never made a skilled sailor.” This may be the moment for skilled investors to position their portfolios for better times ahead. While volatility indices should continue to remain in top of mind, the present conditions are far from prohibitive in the quest for long-term potential returns.

     

    Sources:

    1 Morgan Stanley Capital International

    2 ROBO Global®, S&P CapitalIQ, For standardized performance data current to the most recent month end, please visit www.roboglobaletfs.com.

    3 ROBO Top Ten HoldingsHTEC Top Ten HoldingsTHNQ Top Ten Holdings

    4 Facebook Apple Netflix Google

     

    The performance data quoted represents past performance and is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when sold or redeemed, may be worth more or less than the original cost.  Current performance may be lower or higher than the performance data quoted.

    Index returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Holdings are subject to change. 

    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 fund or any security in particular. Please consult your financial advisor for further information.

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