Warning: members of the public are being contacted by people claiming to work for AXA Investment Managers UK Limited.  Find out more information and what to do by clicking here.

Robotech strategy - April 2022

  • 24 May 2022 (7 min read)

We now see attractive valuations in the semiconductor sector

  • Equity markets fell sharply during April
  • Market continues to be nervous around the potential pace of rate rises
  • Weakness in semiconductor companies following a very strong 2021 for the sector

What’s happening?

Equity markets fell sharply during April (MSCI ACWI Index in USD terms), continuing the challenging start to 2022.  The Robotech strategy lagged the MSCI ACWI Index during the month.  Over the period, Energy, Materials, Utilities and Real Estate were amongst the best performing sectors of the global equity markets – areas in which the Robotech strategy has no exposure.

Geopolitics and rising Energy prices again dominated market sentiment during the period as a result of the Ukraine conflict.  Concerns continue to build around the risk of an economic slowdown with consumer spending likely curtailed as a result of higher energy prices meaning less scope for discretionary spend.   In early May, the federal reserve hiked interest rates by 0.5%1 , which continues the recently started normalisation process of interest rates, following the cuts at the onset of the COVID pandemic.  The market continues to be nervous around the potential pace of rate rises over the coming year, particularly in the face of a seemingly softening economic outlook.

Earnings season commenced in April and so far, reports from companies have largely been encouraging.  Companies continue to point to the challenges of supply chain issues and component shortages as well as input cost inflation which has pressured margins in some cases.

Portfolio positioning and performance

With the risk of a softer consumer spending environment, we have seen weakness in some of our consumer focussed companies including Amazon and Ocado (a UK based supplier of automation solutions for the grocery market).  We have also seen weakness in the share prices of many semiconductor companies following a very strong 2021 for the sector.  The semiconductor companies, such as ON Semi (Largely focussed on Automotive and Industrial chips), Qualcomm (Smartphone chips) and Silicon Labs (Internet of Things chips) have all reported healthy results and outlooks, with only Texas Instruments offering a weaker outlook citing uncertainties caused by the lockdowns in China.  The combination of robust earnings and falling share prices for the group has resulted in significant multiple contraction for the sector, where we now see attractive valuations.

The was a mixed reporting season for some of the Japanese automation names.  Fanuc, a leading Japanese robot manufacturer reported strong orders, but softer profitability as a result of component shortages and increased costs.  Keyence, a leader in sensors and components for factory automation fared better, with record quarterly sales and a healthy backlog of demand.

April saw a high degree of market volatility.  We trimmed positions on some companies that had help up better including Apple and semiconductor company Texas Instruments, which so far this year has been more resilient than most of its peers.

We added to our position in German industrials company Siemens.

Outlook

Inflationary pressures have continued to build as the year has progressed with the Ukraine conflict contributing to rising energy prices and raw materials.  This presents headwinds to industrial companies that will either need to absorb these increases themselves, pass the impacts on to customers or most likely, a combination of the two.  The recent events in Europe have added to an already complicated situation for supply chains.  The increase in Energy prices risks having an impact on consumer spending intentions, where a more constrained consumer will likely cut back on discretionary spend.

We continue to believe that inflationary pressures and supply chain challenges will continue to have an impact on companies operations as well as labour shortages in certain parts of the economy contributing to rising wage pressure.  According to the US JOLTS figures (Job Openings and Labour Turnover Survey), there are around 11 million jobs that are currently being advertised for in the US compared to 6-7 million which was the average in the years pre-pandemic.  This high level of job openings indicates that companies are trying to source employees, but are struggling to find them.  In many industries, labour scarcity presents an opportunity for automation to help ease these pressures, particularly in areas like manufacturing and we see this being a key driver of automation demand whilst these issues persist.

At the end of October 2021, The International Federation of Robotics, a leading industry research group that track deployments of industrial robots around the world, released their figures of industrial robot deployments.  This confirmed, that despite the disruption seen by COVID, shipments of industrial robots were higher in 2020 than in 2019.  They also released their forecasts for robot installations out to 2024 which showed continued solid growth for the industry.  We are optimistic for the growth of Robotics over the coming years - in addition to the pent up demand for automation equipment post COVID-19, we believe that there are also elements of pent up demand coming through post the US China trade war of 2019/2020 – we were starting to see signs of this recovery at the end of 2019 and early 2020 before COVID put companies investment plans on hold.  If this does start to materialise, this could signal a more prolonged period of higher industrial activity and CAPEX2 investments, supportive to a range of automation companies.

No assurance can be given that the Robotech Strategy will be successful. Investors can lose some or all of their capital invested. The Robotech strategy is subject to risks including; Equity; Emerging markets; Investments in specific sectors or asset classes; Global investments; Investments in small and/or micro capitalisation universe; ESG.

  • Source: Bloomberg – 04/05/2022
  • CAPEX: Capital Expenditures
Read the full article
Download report (242.56 KB)

Related Articles

Equities

UK Mid Cap strategy - July 2022

  • by Chris St John
  • 18 August 2022 (7 min read)
Equities

UK Multi-Cap strategy - July 2022

  • by Chris St John
  • 18 August 2022 (5 min read)
Equities

Digital Economy strategy - July 2022

  • by Jeremy Gleeson
  • 04 August 2022 (5 min read)

    Disclaimer

    Not for Retail distribution: This document is intended exclusively for Professional, Institutional, Qualified or Wholesale Clients / Investors only, as defined by applicable local laws and regulation. Circulation must be restricted accordingly.

    Past performance is not a guide to current or future performance, and any performance or return data displayed does not take into account commissions and costs incurred when issuing or redeeming units. The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested. Exchange-rate fluctuations may also affect the value of their investment. Due to this and the initial charge that is usually made, an investment is not usually suitable as a short term holding.

    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities. The strategies discussed in this document may not be available in your jurisdiction.

    Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

    Please note that the management company reserves the right, at any time, to no longer market the product(s) mentioned in this communication in a European Union country by notification to its authority of supervision in accordance with European passport rules. In the event of dissatisfaction with the products or services, you have the right to make a complaint either with the marketer or directly with the management company (more information on our complaints policy available in English here). You also have the right to take legal or extra-judicial action at any time if you reside in one of the countries of the European Union. The European online dispute resolution platform allows you to enter a complaint form (by clicking here) and informs you, depending on your jurisdiction, about your means of redress (by clicking here).

    Issued in the U.K. by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales, No: 01431068. Registered Office: 22 Bishopsgate, London, EC2N 4BQ. In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.

    Risk Warning

    The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested. 

    Are you an IFA or other Professional Investor ?

    Are you a financial advisor, institutional, or other professional investor?

    This section is for professional investors only. You need to confirm that you have the required investment knowledge and experience to view this content. This includes understanding the risks associated with investment products, and any other required qualifications according to the rules of your jurisdiction.