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Tech Megatrend Monthly Report | June

  • Many innovative technologies have been leading beneficiaries of the Covid-19 global lockdown (Robotics, Genomics, Cloud).
  • Working remotely has also created increased demand and traffic across Social Media and Cybersecurity.
  • Medical technology also increasingly popular.

 

Performance Review

HAN – GINS Innovative Technology UCITS ETF (ITEK) continues to recover well.  In May it recorded another impressive gain of 7.16% following April’s recovery of just over 14%. By the end of May the fund had gained 4.8% for the year 2020. 

Its NAV is fast approaching an all-time high of $10/share.

The Genomics theme helped drive gains during May, showing the best performance of all the subthemes. Cybersecurity and Cloud Tech followed as boosters of subtheme performance. 

Over the past 12 months, ITEK has gained 26.0%, due its equally weighted construction across its 8 subthemes. Performance across all 6 subthemes currently populated - has been remarkably steady.

In particular, stand out performers in May include:

Allogene Therapeutics (66.6%), ZScaler (46.2%), Splunk (32.4%), Crowdstrike (29.8%), Okta (29.3%), Fortinet (29.2%) and Genmab A/S (28.0%).

The largest number of Top 10 holdings are currently represented by Genomics holdings, due to the strong gains in this subtheme.  This has been powered by Biotech and Gene therapy players - benefiting from the COVID-19 search for a vaccine.

US exposure remains dominant at currently 61.6% - largely powered by Cloud, Cybersecurity, Social Media and Genomics holdings. Asia at 23.6% includes primarily Social Media, Robotics and Cloud firms.

 


May


YTD
*


12 Month
**


7.16%


4.81%


26.00%

Past performance is no guarantee of future performance.
Source: Bloomberg/HANetf
*YTD figures based on 01.01.20 - 31.05.20
**12 Month figures based on 01.06.19 -31.05.20

 

HAN-GINS Innovative Technology ETF - 1YR Performance (to May 31, 2020)

Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Source: Bloomberg / HANetf. Data as of 31/05/20

 

Innovative Technology News

COVID-19 lockdowns and the search for a vaccine have helped boost adoption rates across a variety of innovative technologies. Behaviours are changing fast – businesses, hospitals and consumers are unlikely to go back to pre-COVID19 habits.

The increasing shift to the cloud has also led to a sizable increase in demand for cybersecurity companies.  A number of our holdings benefited from the growth in VPN and other forms of security software licenses.  In 2020 size of the cyber security market is estimated to be $173 Billion. While analyst estimates vary, there is broad consensus that the industry will continue to benefit from huge tailwinds, reaching anywhere between $250 Billion and $1 Trillion per year by 2025. 1

The strong tailwinds propelling the cloud market alongside its critical infrastructure-like role in the modern digital economy has created a great deal of investor interest in the sector. Spending on cloud already accounts for a large proportion of corporate IT budgets and this is expected to continue to increase - respondents to the Flexera survey expected an average 47% rise in cloud spending this year.

 

Annual Cloud Spend $

% Respondents

More than $12 Million

20%

$2.4m - $12 Million

36%

$1.2 - $2.4 Million

18%

$600k - $1.2 Million

13%

 

Predictions for the growth of the global cloud industry show a similar trajectory with Gartner suggesting 17% revenue growth for cloud companies in 2020-2021 period.  Other analysts suggest that by 2027, the cloud market could be worth as much as $927 Billion – nearly four times its current size. 2

The investment opportunity of the electric and hybrid vehicle market is well illustrated by the fact that, by market cap, Tesla is the now the second largest car company in the world. With a market cap (20th May) of 150Bn, Tesla is larger than General Motors (35.3Bn), Honda (43.5Bn) Ford (21.1Bn), Daimler (36.2Bn) and Harley Davidson (3.3Bn) combined. Only Toyota, at 195.5Bn is larger. 3

Electric and hybrid vehicles still represent only a small portion of the overall automotive market – about 2.7% of all sales in 2020. Nonetheless, growth is significant, with sales surging from 450,000 vehicles in 2015 to 2.1 million in 2019. This growth trajectory is expected to continue with as many as 54 million vehicles, or 58% of the total market being electric or hybrid in the next 20 years. In 2019, Europe and Asia represented ~75% of the total electric and hybrid vehicle markets and are expected to be significant drivers of future transport. 4

Robotics and AI are addressing a host of problems resulting from an aging population, rising labour costs, and quality improvement needs. 

  • Aging populations – Fewer people to produce goods & services, more economic dependents, increased healthcare needs.
  • Labour costs - high labour costs can be reduced by robots (cheaper than offshoring).  Wages in China and EM are getting more expensive.
  • Performance improvements – robots more precise and faster than humans = less wastage, high output and better quality.

 

Labour costs are expensive and rising, which is a particularly challenging prospect for competitive industries like manufacturing. While offshoring helps, many companies are finding robots to be even more cost efficient.  Likely onshoring of more US manufacturing post COVID in the China trade war) – likely to boost demand for robots given their cost savings versus US workers.

 

For illustrative purposes only
Source: IFR World Robotics

 

Production output is increasing dramatically as robots become cheaper to produce. The cost of industrial robotics is expected to drop to average levels of just $20K per robot - converging with the cost of an average manufacturing worker. As the economic case for robotic workers becomes more attractive, the industry is expected to grow 10% p.a. hitting $83bn in 2020. 

The recent COVID-19 outbreak highlighted how robots can be used in situations that would be dangerous or inefficient for humans:

 

Source: R. Murphy, V. Gandudi, Texas A&M; J. Adams, Centre for Robot-Assisted Search and Rescue, CC BY-ND.  

 

The Genomics market is expected to be a high-growth healthcare theme. In 2019, the market was estimated to be $19 Billion and is expected to grow to $39.7 Billion by 2024 - a CAGR of ~13.5%. 5

Genome-based research is already enabling medical researchers to develop improved diagnostics, more effective therapeutic strategies, evidence-based approaches for demonstrating clinical efficacy, and better decision-making tools for patients and providers.

Social Media

While most traditional advertising mediums have been in long-term secular decline, digital advertising spend has rapidly accelerated. In 2016 the ad industry became digital-first, with more advertising dollars spent online than on TV, or any other form of media. In total, online ad spending grew from ~$48.4bn in 2008 to ~$227bn in 2018 and is estimated to reach ~$274bn this year (2020). Social media is increasingly dominant in the digital advertising market. 

 

Constituent News

Give the equal weighting of subthemes and their underlying holdings - the significant Genomics outperformance in May has pushed its weighting to the top of ITEK.  Upon rebalance later this year all subthemes will be equal once more.

Below is a Table showing which holdings contributed most to performance in May.  A large proportion of Genomics, Cloud and Cybersecurity companies are represented.

Cybersecurity players ZScaler and Crowdstrike posted significant earnings gains recently – based on the growth of VPN and related security licenses. For the year, they are up 111% and 76% respectively.  Zscaler's fiscal third-quarter 2020 results easily beat Wall Street's earnings expectations.  Its quarterly revenue surged 40% year over year to $110.5 million, driven by Zscaler Private Access usage increasing over 10 times. The company is benefiting from the huge rise in the number of people working from home. 6

Allogene Therapeutics is developing a pipeline of allogeneic CAR-T cell therapies to treat cancer. Unlike first-generation cell CAR-T therapies, allogeneic cell therapies are derived from donors or cell lines, permitting them to be manufactured at substantially lower cost and larger scale.  Its share price is up 85% for 2020.

Nvidia is at the forefront of AI and machine learning - powering self-driving cars, cloud gaming and data centres. Nvidia earnings for the first quarter reinforced that the chipmaker's data centre business is growing rapidly.  The lockdown has helped with its exposure to gaming.  As Tesla’s sales and deliveries soar, Nvidia is likely to benefit too as a key supplier to them.  Its share price is up 51% in 2020.

The Meet Group has reported good gains in social media followers during COVID-19, due to social distancing.  Its dating services have become increasingly popular (Grindr etc). It has seen a 23% share price gain in 2020. (Source: Bloomberg on share 2020 share price gains to May 31).

 

Top 20 Performance Contributions- month of May 2020

Holdings

% Average Weight

Total Return (%)

Contribution to Return (%)

ALLOGENE THERAPEUTICS INC

1.58

66.64

0.80

ZSCALER INC

1.52

46.23

0.65

SPLUNK INC

1.14

32.40

0.34

CROWDSTRIKE HOLDINGS INC - A

1.37

29.78

0.37

OKTA INC

1.45

29.27

0.38

FORTINET INC

1.38

29.20

0.35

GENMAB A/S

1.33

27.96

0.33

AGIOS PHARMACEUTICALS INC

1.02

25.77

0.24

SAMSUNG SDI CO LTD

1.12

22.24

0.24

NVIDIA CORP

1.29

21.47

0.26

PALO ALTO NETWORKS INC

1.26

19.72

0.23

ZAI LAB LTD-ADR

1.34

18.62

0.24

BLUEBIRD BIO INC

0.87

18.10

0.15

ROCKWELL AUTOMATION INC

1.15

14.67

0.17

SEATTLE GENETICS INC

1.46

14.56

0.20

SKYWORKS SOLUTIONS INC

1.17

14.54

0.17

KEYENCE CORP

1.29

13.65

0.17

INTUITIVE SURGICAL INC

1.10

13.54

0.15

INFINEON TECHNOLOGIES AG

1.02

13.05

0.13

NEKTAR THERAPEUTICS

1.10

13.02

0.14

CISCO SYSTEMS INC

1.16

12.84

0.15

Past performance is no guarantee of future performance
Source: Solactive / FactSet. Data as of 31/05/20

 

Top 10 Constituents

Weight

Zscaler Inc.

1.95%

Allogene Therapeutics

1.85%

Okta Inc.

1.58%

Meet Group

1.57%

Crowdstrike Holdings

1.52%

Facebook Inc.

1.51%

BioNTech SE

1.46%

Seattle Genetics

1.43%

Genmab A/S

1.42%

Fortinet Inc.

1.41%

 

Region Breakdown

Weight

North America

61.62%

Asia

23.62%

Europe

13.67%

MENA

1.09%

 

Region Breakdown

Weight

Genomics

18.73%

Cybersecurity

17.31%

Cloud

16.67%

Robotics & Automation

16.45%

Future Cars

16.12%

Social Media

14.72%


Source: Bloomberg / HANetf. Data as of 31/05/20

 

Fund Details

HAN-GINS Innovative Technology UCITS ETF (ITEK) is a UCITS compliant Exchange Traded Fund domiciled in Ireland. ITEK tracks the Solactive Innovative Technologies Index (Net Total Return), an index of leading companies that are driving innovation in sectors including Robotics & Automation, Cloud Computing & Big Data, Cyber Security, Future Cars, Genomics, Social Media, Blockchain and Augmented & Virtual Reality.

The Solactive Index is managed according to a published, rules-based methodology. It is designed to measure the performance of an investable universe of publicly-traded companies that are involved in innovative and disruptive technological trends across a broad range of industries mentioned. To be included, companies must derive a majority of revenue from one of these themes.

Please remember that the value of your investment may go down as well as up and past performance is no indication of future performance.

 

EXCHANGE

BB CODE

RIC

ISIN

CURRENCY

INCOME

London Stock Exchange

ITEK LN

ITEK.L

IE00BDDRF700

USD

Acc

London Stock Exchange

ITEP LN

ITEP.L

IE00BDDRF700

GBP

Acc

Borsa Italiana

ITEK IM

ITEK.MI

IE00BDDRF700

EUR

Acc

XETRA

T3KE GY

T3KE.DE

DE000A2N5XE0

EUR

Acc

SIX

ITEK SW

ITEK.S

IE00BDDRF700

CHF

Acc

 

Click here to download: Monthly Innovative Technology Market Report 

 

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