Why The ROBO ETF May Be in Prime Position if The Rotation is Here

After five years of waiting for technology shares’ grip on the market to loosen, value investors may have reason to get their hopes up at the start of 2022. 

Recent divergence since the start of the year has resulted in the worst underperformance for growth stocks at the beginning of a calendar year since 1995.1 To many investors, this rotation presents a welcome development in a long bull run that saw a handful of tech giants dominate equity gains—a reality that left the market highly vulnerable to company-specific risks. Long overdue, this inevitable change of events is precisely why diversification has remained a staple in our process at ROBO Global.

Importantly, we think this rotation has come at the same time as other key factors that are rapidly changing the playing field for investors. The Fed’s plan to crank down the ‘liquidity spigot’ has raised compression concerns across the technology landscape. At the same time, expectations that the Fed will raise interest rates this year to tame inflation has resulted in a spike in Treasury yields. While the prospect of higher discount rates has prompted many traders to rethink their affection for growth stocks—particularly those fetching nosebleed valuations—rate hikes could well signal an accelerating economy. This confluence of factors could be good news for cyclical companies. It may also be the writing on the wall for better times ahead for many ROBO ETF holdings that have been shunned prior to this turn.  

The ROBO Global Robotics & Automation ETF (ROBO) is designed to provide a high-quality bias and significant exposure to cyclical tech sectors, such as factory automation. Much different than a concentrated bet on a handful of high-flying tech stocks, the ROBO ETF offers a selection of carefully selected robotics and automation stocks from around the world, with an emphasis on industrials, warehouse and logistics automation, and healthcare innovation. The result: at a time when many high-valuation tech stocks are off 30-50% from their all-time highs, ROBO is only off by just under 6% so far in 2022.2a, b (The ROBO Global ETF finished 2021 up 15.28% (NAV) – please see the factsheet for more performance information.)

In contrast, some of the more concentrated thematic ETFs – poster-children of the market frenzy over hyper-growth names – remain in the cross-hairs. As the Fed turns hawkish, company fundamentals and valuations will matter more than ever. The portfolio constituents of ROBO, which was launched back in 2013, currently trade at 5.5x Enterprise Value to Sales, which measures the total value of a company to its sales.3 Valuations and profitability have always been important metrics for us. Now that many investors are allocating towards consistently profitable companies, this could be the value comeback we at ROBO Global have been waiting for.

 

 

(1) Source: Bloomberg

(2a) Source: Bloomberg

(2b) Source: Bloomberg (as of 1/13/2022)

(3) Source: S&P CapitalIQ, Factset. EV/Sales as of end of day 1/6/2022

 

 

Diversification may not protect against market risk

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