With one quarter remaining in 2021, this year is proving to be nearly as tumultuous and volatile as the last. It feels like we’ve been on this road for a while, and the same bumps in the road keep thwarting progress—including the Fed, stalls in re-opening, and the good old ‘transitory vs. not’ debate about the state of the economy. In short, what everyone anticipated would be a more ‘normal’ environment in 2021 has turned out to be anything but.
On a more positive note, the rebound in earnings this year has been swifter than anyone could have imagined. Companies in the US and abroad made the most of operating leverage gained over the course of the pandemic to adapt to changing consumer behavior, leading to near-record YoY earnings growth (albeit over a low base). Earnings revisions climbed steadily throughout the year, and the indices have generally followed.
However, 2021 has been anything but easy for active investors. Despite all major indices being +10% or more YTD, alpha1 has been hard to come by. For the month of September, the ROBO ETF declined -4.35%, THNQ pulled back -4.69%, and HTEC saw a deeper selloff, closing the month -6.62%1.
The general selloff that began on the back of Evergrande fears gained new velocity at month’s end, due in part to the rise in rates (+17bps since last week’s FOMC meeting). The effect of higher interest rates on equities was felt acutely by the tech sector during the last Tuesday of the month, with the Nasdaq-100 selling off nearly -3%, and unprofitable technology companies taking the hardest hit. This environment helped fuel a rotation towards value that made September the first negative month for the index since January. In fact, September was the worst month for the major indices since March of 2020.
All things considered, we may be due for further pain at the index level before retail and institutional investors are ready to reengage at a meaningful level. Though earnings revisions in every sector have remained steady throughout the year, 4Q may be the quarter that will break the trend due to the unfortunate impact on earnings of the Delta variant and the resulting supply chain disruptions that have already begun to make their presence known.
The good news in all this is that, at least when separating the stock market from the economy, the cycle remains in great shape. Though the economy is decelerating after a surprisingly rapid recovery from one of the most dramatic shocks in recent memory, issues continue to center around companies’ ability to deliver needed supply—not a drop in consumer demand. The challenge of meeting robust demand is real, and businesses in every sector are struggling to achieve the hard capital and the human capital to deliver.
Happily, the robotics and artificial intelligence companies in the ROBO Global ETFs are delivering solutions to these challenges by enabling the transformation of global business models.
- ADI, known for its analog and mixed signal, power management, radio frequency (RF), and digital and sensor technologies, posted $1.76B in revenues for 3Q (ending July 31, 2021)2. These results exceeded expectations, despite a challenging supply environment in which the heavily constrained semiconductors supply chain is expected to persist into 2022. But orders continue to outpace inventory, and extensive 5G buildouts continue to strengthen the industrial and consumer segments that are driving much of the growth. The result: ADI has slated $1B in R&D annually, and has forecast 4Q revenue of $1.78B (+/- $70M). ADI is a member of ROBO Global’s THNQ ETF.
- Hubspot, provider of the popular customer relationship management (CRM) platform and member of the ROBO Global THNQ ETF, posted strong Q2 results, bringing in $311M3. Eps, margin, and deferred revenue all came in above expectations. While results have not yet been announced, 3Q and FY guidance had been raised, driven by a combination of increased prices across its large installed base and the introduction of new services, which have bumped up total average sales compared to last year. Hubspot is also continuing to benefit from the pandemic-driven digital transformation that has pushed companies to invest in digital marketing tools and enabled the company to hit a new milestone of 100k customers.
- Codexis, a leading enzyme engineering company and member of ROBO Global’s HTEC ETF, also reported a strong Q2, with revenue of $25M beating consensus $18M4. Revenue guidance was raised to ~$100M thanks to orders for the company’s new proprietary API enzyme, including an order from Merck which was announced in September and is expected to drive the largest annualized sales for a product in Codexis's history.
Heading into the final stretch of the year, the risks and concerns to growth are looming wider and larger, from global credit risks to debt ceilings. To make matters worse, central banks are turning less accommodative under the assumption that the recovery is nearing ‘satisfactory’ levels which, in turn, is adding to inflation risk. It’s a messy situation, and one for which the remedy is time. In the interim, robotics, automation, and healthcare technology companies are continuing to enable business transformation and pave a path toward a happier, healthier, and more productive future.
1 Alpha (α) is a term used in investing to describe an investment strategy's ability to beat the market, or its "edge.
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: ADI
4 Source: Hubspot
5 Source: Codexis
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.