By Jeremie Capron, Director of Research, ROBO Global
At ROBO Global, we believe robotics, automation, and AI to be the next technological revolution—perhaps the most important in our lifetime. It is a global shift that is comparable to the introduction of electricity in the early 20th century and, more recently, to the adoption of the Internet and mobile technologies over the last two decades.
Earlier this week, we revealed our Artificial Intelligence Index (THNQ) to US investors. This AI-focused index seeks to capture the growth and returns opportunity presented by the advent of machine intelligence. For investors, AI may be one of the greatest investment opportunities of our generation. The simulation of human intelligence processes by computer systems, AI uses machine learning to enable systems to learn by themselves with little human intervention. And while machine intelligence has been around since the 1950s, it has only recently hit an inflection point, moving from the experimental phase to an era of practical commercial application. The key ingredients are in place: very large datasets, immense computing power, the technology infrastructure, and perhaps more importantly, an increasing sense of urgency to digitize within the business community.
Historically, the stock market tends to under-appreciate the scale of opportunity enjoyed by leading providers of new technologies during this phase of development. This creates a remarkable opportunity for investors who understand the scope of the AI revolution and who take action at a time when AI is disrupting industries as we know it and forcing us to rethink the world around us. We anticipate that AI will profoundly transform every industry, creating disruption in which stale business models will disappear and innovation will offer new profit opportunities.
The market is telling us something significant is happening. 2Q 2019 saw a record $7.4 billion invested in AI startups, with the majority going to autonomous vehicles and healthcare-related companies. Since 2013, $66 billion has been invested in AI startups across nearly 7,000 deals, with several $100M+ megadeals in the most recent quarters, according to CB Insights.
The public companies at the forefront of the AI revolution have begun to significantly outperform global equities. Over the past 12 months, the ROBO Global Artificial Intelligence Index (THNQ) has returned over 10%, compared to a 3% decline for global equities. A backtest shows annualized total returns of over 25% and 23% in the three- and five-years ending 12 May 2020.
THNQ combines the results of our extensive research efforts with the discipline and quantitative aspects of index investing to provide exposure to best-in-class companies, small and large, that are leading the global AI revolution in major areas covering infrastructure and enabling technologies (data & analytics, semiconductors, network & security, cloud providers, and cognitive computing) and applications and services (business process, e-commerce, healthcare, factory, and consulting).
To select best-in-class index members, we evaluate and score companies for technology and market leadership, as well as for revenue and investment exposure. Those with the highest “THNQ scores” that also pass ROBO Global’s Environmental, Social & Governance (ESG) policy requirements are selected as index members. We review suitable companies’ THNQ scores based on ongoing research, engagement with company management teams, and market developments, and we reconstitute and rebalance the index to modified equal weights on a quarterly basis.
The resulting portfolio is significantly different from typical technology funds. THNQ gives strong representation to a multitude of small- through large-cap companies from around the world that are not in typical portfolios. In fact, the overlap with world equity indices is less than 10%.
For more information about THNQ, please visit roboglobal.com/thnq