Follow the Money: M&A Boom in Robotics, AI & Healthcare Technology


    Tune in for a discussion to learn more about the key M&A trends across robotics, AI and healthcare tech in 2021 so far. For a deeper dive into the most interesting M&A activity in 2021, download our M&A Report below.

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    Webinar Transcript:

    Jeremie Capron:           

    My name is Jeremie Capron. I'm the Director of Research here at ROBO Global, I'm talking to you from New York. And with me on the call today are my colleagues from the research team, Lisa Chai, Nina Deka, and Zeno Mercer. And today we're going to talk about robotics, automation, AI, healthcare technologies, with a focus on deal activity, which has significantly increased in the last 18 months. So we'll be looking at both the public equity side and the private side, venture capital.

    We're going to be discussing some of the key trends and we'll make sure to save some time for your questions. Some of you know we regularly share some of our research on the website and our in biweekly emails. And we just published a new report covering today's presentation in greater detail. So feel free to download this report, sign up for our newsletter,

    So let me start with a quick reminder what we do here. We are a research and investment advisory company that's focused on robotics, AI, healthcare technologies. Eight years ago, we put together a team of investment professionals and industry experts with the goal of designing thematic, investment strategies around what we believe to be a technological revolution. Robotics, AI are a set of general purpose technologies that can be applied to every industry. We think about it like the internet or electricity, and this is offering tremendous investment opportunities.

    Today there's over four and a half billion dollars in funds tracking our strategies, they're primarily in ETFs. The most notable is probably ROBO, R-O-B-O, that was the first robotics and automation index portfolio that launched in 2013, and now in its eighth year. And our research around automation led to realize that something very important is happening in two areas that adjacent to robotics automation.

    And so in the last few years we introduced two additional index portfolios. The first one is T-H-N-Q, or THNQ, that is the artificial intelligence index. And the second one is each H-T-E-C, or HTEC, that is the healthcare technology and innovation index. These are not your traditional ETFs or strategies combined, a research-driven approach, with the benefits of index investing and the ETF wrapper. What you find in these portfolios is such best in class companies from around the world, small, mid, large caps, that are more or less equal weighted and rebalanced every quarter. So they are diversified yet they have a very high active share relative to raw equity indices like the S&P 500.

    And the three strategies have outperformed global equities since inception, as you can see on this table that shows index returns as of the end of last month, August, 2021. You can see the returns has been quite satisfactory. They've been driven by structural and technological drivers of adoption for these technologies, and the strong financial performance of the companies that are leading this revolution. So, M&A has been a pretty strong tailwind to the ROBO return since we first designed the portfolio in 2013. And this is in the context of little more than 80 companies in that in our portfolios, we see 25 takeover attempts since we started eight years ago, and we'll get back to that. But really the important point here is that we've seen a clear acceleration in the past 18 months and that is despite the significant business disruptions during the pandemic.

    In fact, it's fairly said that robotics, AI, healthcare technologies are seeing a perfect storm of capital now. We are now almost three quarters into 2021, and we're looking at another record year in terms of mergers, acquisitions, venture funding. We have a record number of birth of unicorns, we have big IPO's. We think the pandemic has turbocharged digitization of our economy, and has left some major scars as we come out the other side. You think about the supply chain disruption, rising commodity prices, rising transportation costs. We have shortages, semiconductor shortages. We have labor shortages. And this is really led to a race to automate and digitize, and that's become a top strategic priority for the companies around the world. And especially those larger, slower moving organizations, they understand that they must have a presence and capabilities around automation. And in many cases, they are behind the curve and they need to acquire rather than build those capabilities and that they're ready to pay up for quality businesses.

    On this next slide, I want to highlight that the technology and market leaders in AI, in robotics, in healthcare tech, the companies in our three portfolios they tend to be high quality businesses in terms of their margins, their return on capital, the strength of their balance sheet. And this chart here, it shows the percentage of companies with a net cash position for ROBO, HTEC and THNQ, and some raw equity indices. And so 70% of the companies in the artificial intelligence index, the THNQ index, have more cash than debt, that's a measure of balance sheet strength. That is a lot more than what you'll find in the NASDAQ or the S&P 500.

    I also want to point out that the companies we're talking about here, they're not just US companies. You can see we have more than 13 countries were presented. And a lot of these companies are small and mid-caps between 40 and 50% of the ROBO and HTEC portfolios. The vast majority of them, they are not represented in the S&P 500 or in the global equity indices. And so most investors have very limited exposure to robotics, AI and healthcare tech.

    So, let's look at what's happening in robotics automation first, then I'll pass it on to my colleagues to discuss the healthcare tech and AI, and then we'll wrap up with what's happening on the venture capital side. So, this is a chart of total returns for ROBO over the past five years, it's just above 21% compound average annual rate. You can see the names of the companies that have received a takeover offer during those five years. And as I said earlier, in the seven or eight years that we've been running it, we have seen 25 takeover attempts on our portfolio companies, out of a total of about 80 in the portfolio.

    So at the beginning of the year, if you move to the next slide, I want to highlight some of the deals we've seen this year. And each of those takeouts typically happens at a premium and that provides a tailwind to the portfolio returns. The first one we saw was FLIR systems. FLIR is a leader in thermal imaging sensors. They've agreed to be acquired by Teledyne, that is another ROBO index members, for $8 billion. And FLIR is the global leader in thermal infrared sensing, and they have strong capabilities also in drones and machine vision. And then we saw a very important takeout, which is that of Nuance by Microsoft, for $16 billion. Nuance in conversational AI, is the only company that's in all three portfolios. So I'll let's Zeno discuss the Nuance Microsoft situation when we cover AI in a few minutes.

    Then we saw Raven agree to be acquired by CNH, that's a $2.1 billion transaction. Raven has been in the ROBO portfolio for many years. It is a leader in agriculture technology, especially precision farming. They make autonomous solutions for farm equipment and CNH is one of the global leaders in ag machinery. And so that's another example of how the bigger organizations are really looking to acquire those autonomous and automation capabilities via acquisitions.

    And then we have HollySys, that's a leader in factory automation in China, is a Chinese company. It's received several offers, starting last year, to go private. One was led by a founder and former chairman of the company. Another one came from the former CEO of the company along with a private equity group. And these offers have been about 30% of both the stock price before the information became public.

    There's one more deal here, that is Blue Prism. About a couple of weeks ago we heard from Blue Prism that they have been in discussions to go private, as well, with two different PE groups. The stock jumped more than 30% as well. Blue Prism is a top three player in robotic process automation, that is RPA, that's essentially software robots that automate business processes. So, that's it for ROBO. I want to remind everyone that you can ask your questions via the Q&A box. And with that, I will pass it on to Nina to discuss the healthcare tech.


    Nina Deka:

    Thanks, Jeremie. So, HTEC is our healthcare technology and innovation index. The ticker is HTEC. As you can see here, we've got HTEC performance compared to the global healthcare index, as well as global equities. And as you can see over a three year period, healthcare tech has really outperformed. In fact since inception the healthcare technology and innovation index has more than doubled just regular global healthcare indices. When we think about what's driving this out performance, there is a large demand for a lot of disruption happening in healthcare right now. A huge opportunity for digitization, automation, more and more robots are being deployed and massive growth opportunities in genomics. As these technologies scale, they can get more and more efficient.

    So a lot of companies across the healthcare technology landscape are actually participating in M&A in order to go after and get exposure within their organizations to a lot of these new technologies. In fact, if you were to look at... Actually, the next slide would be... Yeah. So here we talk about the sort of the deal summary here. As you can see in 2019, there were 59 deals across the HTEC index and they totaled about 17 billion. And then that number skyrocketed in 2020, there were 93 deals, totalling nearly 67 billion. And then here we are year to date in 2021. And we are potentially on track to be level with last year, if not surpass last year in terms of number of deals and deal value.

    So, M&A is really hot in the healthcare tech landscape and we're seeing a common theme this year particularly across the diagnostics businesses. Just some highlights. One company in particular, Thermo Fisher Scientific, this is a global diagnostic giant. They acquired PPD, a leading clinical research organization, also known as CRO. CROs are companies that help pharma companies develop drugs. And about two thirds of all drug development is outsourced to companies in this CRO industry.

    So Thermo is getting exposure to all the growth happening in biopharma. They acquired another drug manufacturing company, several years ago, named Patheon, and now they're in the drug development space further with this acquisition of PPD. The valuation of the acquisition is nearly $20 billion if you factor in the debt and the deal is expected to close in Q4 of this year. So just to give you an idea of what Thermo now has.

    Going forward is, PPD is a global leader in these clinical research and clinical trials. They operate in over 50 countries. In the last five years, they helped support more than 400 drug approvals. These are companies that are kind of behind the scenes that a lot of people don't hear about that really help pharma companies bring drugs to market. And with this acquisition, Thermo expects to add a dollar 50 in earnings per share, during the first year of ownership of this asset.

    So that's just one example of the bridging that we're seeing going on from the diagnostics world further into the drug development world. There are other areas happening in diagnostics. Danaher is another company. They are a leading manufacturer in life science diagnostics and lab automation. And they acquired a clinical research organization, Aldevron, for $10 billion, so that they could go further into genomic medicine.

    And then PerkinElmer, this is another global leading diagnostic company. They acquired the largest acquisition in the company history, BioLegend, for five billion. And this helps them get further into the antibodies and reagents space. So really exciting things happening in drug development, particularly as drugs get more and more into the precision medicine, if you will, more into DNA and RNA types of drugs. So these diagnostic companies are going after this growth area through M&A, and we expect to see more of that in the future. So with that, I will pause and I'll go ahead and turn it over to Zeno, who's going to help us talk about THNQ.


    Zeno Mercer:

    Thanks, Nina. All right. So, the THNQ index aims to capture opportunities and artificial intelligence across our 11 subsectors, which cover the entire ecosystem, from core infrastructure to applications and services. AI has proven to be instrumental, not just a nice to have, but a need to have with ever increasing amounts of data that requires rapid analysis and processing for both consumer and enterprise applications. And common giants across all industries are investing in house, investing through partnerships and acquisitions as leaner AI driven companies appear in the competitive landscape.

    Near the date, the THNQ index is up 12.6% slightly below the broader global market index that is up 16% for the year. Keep in mind, the THNQ index surge more than 68% in 2020, and it continues to outperform global indices on an annualized basis. Of the five takeout offers this year, there have been... Oh, hold on. Slides of moving around. There've been 97 completed acquisitions by THNQ index members, in 48 deals pending, for over 74 billion in value thus far in 2021. This is on track to match the four year 97 billion in total deal value in 2020.

    Notably, Square's announced its intent to acquire Afterpay for $29 billion. A bid to take on Visa, MasterCard, big banks, and direct to consumer finance, e-commerce and in-person, with buy now pay later play capabilities. This deal brings together two of the fastest growing fintech powerhouses to advanced financial inclusion and accessibility to all.

    Another company, Nvidia, while facing regulatory hurdles for its Arm acquisition announced last year, has not stopped building its technology portfolio to strengthen its leadership in AI with our acquisition of DeepMap, which does high definition mapping for autonomous vehicles, and this was at an undisclosed price. So, Nvidia you traditionally know as an AI developer for a hardware, but they're increasingly getting and realizing the importance of mapping out and being a strong player across the stack.

    Autodesk, another THNQ index member, made an interesting acquisition early in the year with its one billion acquisition of Innovyze, representing a massive opportunity for smart water infrastructure modeling and AI simulation for smart cities. For both water management for human consumption, waste management and agriculture, but increasingly important for the impact of global warming as we've seen play out this year. Lastly, one of our cyber security index members, Rapid7 acquired IntSights Cyber Intelligence, to cover more external threats for enterprise clients using AI capabilities.

    Of the five takeout offers so far this year for the THNQ index, four have been from private equity investors. By all firms have been increasingly active this year, acquiring cloud-based assets as digital transformation takes hold accelerated by the pandemic. But private equity firms, buying assets like Cloudera, a leading provider of enterprise data analytics and machine learning tools, and Talend, a leader in AI data integration, highlights the importance of building out the next generation of AI architecture.

    More recently, Cornerstone OnDemand, an HR management SAS player, was acquired by Clearlake for nearly $4 billion. These data analytic providers are key players in building mission critical data driven applications, the security, governance, scale and control access across the data life cycle. Since the opportunity for AI applications are deploying at a rapid rate, some of our index members are looking to ramp up their investments as a private company, outside of the scope of the private or public eye. We would not be surprised to see some of these companies return in a few years with accelerated growth profile and market leading positions in the AI ecosystem.

    Most notably, THNQ index member, Microsoft, acquired fellow index member, Nuance Communications, for over $19 billion at a 23% premium. As Jeremie mentioned earlier, Nuance has been a THNQ index member since exception and is also a member of ROBO and HTEC indices. Nuance has been a major success as a pioneer and conversational AI and natural language processing for the healthcare space. Covering both the clinical setting and probably more so getting into diagnostics and other innovations. They have an estimated 60% of market share, but they had been trading relatively flat.

    Microsoft CEO has called out healthcare as the most urgent application, and they have been working with Nuance for many years. This acquisition puts them directly in the game to improve healthcare outcomes and automate the laborious administrative burden on our healthcare system. Now, I'm going to pass things on to Lisa Chai who will walk things or walk through about the venture funding environment.


    Lisa Chai:

    Thanks, Zeno. It has been quite a year so far in venture funding market. Venture funding hit new highs with 156 billion in the second quarter alone, with a combined total of 288 billion for first half of the year. Number of exits, whether it's through an IPO, direct listing, M&A, SPACs are up over 109% year over year. We get a lot of questions on what we think about SPACs in general. And we think that SPACs are here to stay. It continues to shatter records with almost 400 SPAC filings, thus far surpassing last year's figures.

    We're seeing the quality of the companies via SPAC also have increased in the past year. So we believe that not all SPACs are created equal. So, in many cases there are some good opportunities if you spend the time to dig a little deeper into their fundamentals. Investments in robotics slowed slightly this year, but overall continues at a healthy pace after a massive funding year, last year.

    So far, in 2021, industrial robots look to be in a bright spot with factories and warehouses investing in their facilities, as demand for e-commerce continues at a rapid pace. This year, it looks like the year for health tech and fintech venture funding. We are seeing increased deal activity in these sectors, as many of them are using next generation AI capabilities. And then we think there'll be continued venture funding shifting into this space.

    China continues to decline venture participation due to a challenging landscape of regulations. Our research indicates that it is down around 20% from last year, and we don't know when it will recover. But longer term, we believe that China will come back and they will be an active participant again. One of the largest IPO companies to debit this year, that is in enterprise AI, is UiPath, at 31 billion valuation. And that came shortly after raising 750 million early in the year in private funding.

    Meanwhile, data intelligence provider, Databricks, raised venture funding of 1.6 billion at the 38 billion valuation and Rivian raised 2.5 billion in venture funding this summer at an $80 billion valuation. You may have heard of Rivian, they are an electric vehicle manufacturer and their rumored to go public, sometime this fall. So, it's definitely an exciting time to be an EV investor.

    There's some other really amazing innovative companies that have gotten funding this year, across technology and digital health. I'll highlight a few. Mollie for example, is an the Amsterdam based company, using APIs to integrate payments into business services. And they're currently valued at 6.5 billion. We think Mollie is one of the most valuable fintech companies out there in the world. Most recently they raised $800 million round to help fund the next phase of growth. The company is now processing over $24 billion in payments, up 100% year over year. And then we expect the company to go public possibly sometime in the middle of next year.

    In general, we expect to see a lot more fintech deals in the venture market as digital spending by consumers rises. The other one I like to highlight is Ledger. Ledger is another fintech company, but in a digital asset category, with its hardware wallet to manage your crypto assets. Ledger is based in France and they just raised almost $400 million in funding with a $1.5 billion valuation, so it's a company to look out for.

    Meanwhile Noom, is a digital health company and they recently raised $540 million. It's an AI powered weight loss app generating over 400 million revenues, more than double the revenues from a year ago. With 45 million downloads and in 100 countries, the company is seeing a lot of success with their personalized app where AI can analyze the user's behaviors and it can also reveal certain data points on meeting your weight loss milestones. So definitely another company to look out for.

    And to go a little bit deeper into healthcare funding, with COVID-19 disruptions fostering the need for ad home and remote patient care models, both existing and new entrance are seeing massive funding in adoption. Just in the first half of this year alone, digital health funding is near 15 billion and continues to outpace last year's figure of 14.7 billion.

    I just want to highlight the top five categories where the venture funding is in Telemedicine at, 4.2 billion. Wellness at 1.7 and medical health app also known as Digital Therapy is at 1.6 billion and Analytics at 1.5 and Clinical decision support at 1.1 billion. Meanwhile, on the next slide, AI investments continue to soar. According to CB Insights, in second quarter, we saw $20 billion deployed to 550 AI power startups, which is another funding record. This year, we saw more $1 billion valuation companies and ever in the history. There are about 24 AI unicorns, just in the second quarter of this year alone. AI exits also continue to set a new record increasing 125% year quarter over quarter. So looking out, we really anticipate this AI funding environment to continue at a record pace. Now I'm going to turn this over to Jeremie and then we're going to probably take questions.


    Jeremie Capron:

    Thank you, Lisa. Quick reminder, you can ask your questions by using the Q&A box at the bottom. We have a few that have come in. I see there's a question around the specific technology sectors that the portfolios provide exposure to. I'll explain a little bit about ROBO and then I'll ask Nina to talk about HTEC, and Lisa, perhaps you can do the AI portfolio. But essentially our investment strategies share that in common, that we try to provide exposure to the entire value chain of technology disruption. So, if you think about robotics and automation, and the robot portfolio, here we are looking at the providers of turn key automation solutions for specific vertical industries, factory automation, of course, but also think about warehouse and logistics automation and the equipment that goes into fulfillment centers for e-commerce.

    Think about the software backbone for the automation of warehouses and things like that. We're looking at healthcare, of course, and here it's about surgical robotics. It's about the automation of hospital workflows. Think about pharmacy automation and things like that or the lab equipment for sample management or the genomic analysis. And then we look at the food and agriculture sector. I mentioned Raven, that's being taken over by CNH. Here it's about the precision farming. It's about the technology that goes into the production of food and beverages. We're looking at consumer as well. Autonomous systems, so think about autonomous vehicles, autonomous drones, and things like that.

    It's about applications but it's also about the technology and infrastructure that makes it possible. When it comes to robotics and automation, we're talking about sensing, FLIR that I mentioned earlier is a leader in thermal sensing. We're looking at the computing and the companies that provide the semiconductors and the compute power for the brains of these automated systems. And then we look at the actuation, which is how the systems interact with the physical world and sort of componentry and the mechanical parts that make robots.

    Really, again, the idea is you cover the entire value chain because the parts of the value chain where the value is created, or the growth accelerate, changes over time. And we want to make sure we can capture that in a way that provides comfortable return and risk profile. Nina, why don't you talk about the the sectors in the HTEC portfolio?


    Nina Deka:

    Sure. Yeah. And just a little bit of background with our history with ROBO. ROBO has healthcare as one of its sectors. And what we saw during the five, six years that that index was running was there was so much disruption happening in healthcare alone that we believed it required its own index, its own strategy, hence why we launched HTEC. So when we look across the HTEC universe, what we're trying to do is provide investors with exposure to all of the areas in healthcare that we believe represent the next decade of growth. There are so many disruptive areas.

    So we've got nine different subsectors. They include robotics, telehealth, genomics, diagnostics, medical instruments, precision medicine. These are all the areas that we believe represent all the disruption that's happening. And I guess there are non-HTEC healthcare indexes that are out there, but where we are unique is that we aren't only focused in genomics. We aren't only focused in biotech, for example. We're not only focused telehealth. We have this broad range where we only select the market and technology leaders across the board. And in doing so we're not only providing exposure to these different areas, but as I mentioned earlier there's, there's so much activity happening, for example, in diagnostics where they want to leverage all the growth happening in precision medicine and new therapeutics. And so they're going after that from an M&A standpoint.

    A lot of these companies throughout the HTEC index partner with one another across subsectors. So when there's something really new and exciting happening like really cancer detection, it's not just the genomics companies that benefit from it, but it's also our precision medicine companies and our process automation companies. So by having this diversification across several different subsectors, you get to really leverage the growth that's happening from all these different innovative areas. Let's see, Lisa or Zeno, do you guys want to talk a little bit about the technology strategies across THNQ?


    Lisa Chai:

    Yeah. I could cover this. So with THNQ, we have 11 subsectors and you should look at it as we're really trying to aim to capture the entire ecosystem of artificial intelligence. We have two classifications where we have the infrastructure and the applications. So in infrastructure, these are companies that are enabling and developing AI, companies in the semiconductor subsectors, companies in the cloud and data infrastructure. And these are companies that are really enabling the optimization and capability of AI applications for organizations.

    And on the application side, we have subsectors like the e-commerce and business process. And it's really beyond just improving the workflow and automation of an enterprise, but also helping enterprises extract intelligent insights so they can engage with our customers, giving that personalized experience like e-commerce subsectors. Within the fintech, which I talked a lot about in the venture funding segment, where you'll see the fintech companies either in the e-commerce with a mobile payment or online marketplace, or you'll also see in the business process using artificial intelligence to prevent a fraud from happening. So you'll get the fraud alerts, credit card companies looking at the credit scoring. So, you're seeing lots of the applications and capabilities of AI being leveraged and being used by the enterprises in these subsectors.


    Jeremie Capron:

    Thank you, Lisa. Let's move on to the next question, which is around what are the most attractive areas in our strategies for future M&A. And I think here, again, we can address the three portfolio separately and I'll kick off with ROBO. In robotics automation, we think that right now there's a sweet spot that is logistics and warehouse automation. And that's really driven by this phenomenal acceleration in e-commerce we saw, not only during the pandemic, but really over the past decade or so. You've got giants like Amazon and Alibaba or JD in China that are setting the bar really high, not only for their own operations but also for the entire industry. And so every company that wants to compete with the likes of Amazon, Alibaba or JD, really need to step up in terms of their use of automation to be able to match the performance of an Amazon delivery within sometimes just one business day.

    And so we find a lot of interest in companies that can provide the logistics automation solutions. It goes from material handling, moving packages inside a warehouse to autonomous mobile robots that can do that. The software companies, just the providers of software solutions to automate warehouses and then the technology infrastructure around that. From sensing to control systems, to compute, this is very, very hot. And so today, logistics and warehouse automation represents about 12% of the global index and we have just under 10 companies in there. What about healthcare technology? Nina, do you want to address that?


    Nina Deka:

    Sure. I mean, there's just so much. There's so many areas right now that companies want exposure to. I guess, one way to answer this is to look at... We titled our report follow the money, but in healthcare I often think of follow the medical error or follow the death rate or follow the costs because healthcare costs are rising at an unprecedented rate. The population is aging at a pace that is unsustainable in terms of the number of healthcare workers that we're going to have over the next couple of decades. We've got more healthcare workers, doctors, and nurses retiring than we do new people coming into the system.

    Areas where you expect to see more M&A investment are opportunities for automation. Any place where someone's doing something manually is something like, look at the pharmacy where human beings are still putting capsules into individual containers to distribute to pharmacy customers. That can be automated. There's robots that do that. There's a company called Omnicell in the HTEC and ROBO index that provides that service. If you look at medical errors, the third leading cause of death in the US, there are so many ways to improve that through better AI. You can further assist what a physician does and help them with their clinical decision-making with AI parts software, with better data analytics.

    We can look at whole populations and determine some people who haven't been to the doctor in a while, might want to get to a doctor. And that way they can have preventative care that will help keep them from having bigger costs down the road like diabetes and heart disease. We covered it in our report, but Boston Scientific has had a lot of activity going on. They want to get further automated and better procedures and capabilities for the cardiology space. They made several acquisitions there, PREVENTUS is a $1 billion acquisition.

    We're going to see more investment in wearable devices. Anything that helps companies and med tech corporations be more interactive with the consumer. Teladoc made one of the largest digital health acquisitions last year when they acquired Livongo 16, $18 billion. And that was a way for them to be literally in the pockets of people with diabetes, hypertension, and weight management to help provide coaching services. So anything that's going to help drive wellness, to keep people well before they get sick, help drive better patient experience, better consumer experience, and then also have with modern procedures, get them even more modernized and digitized.


    Jeremie Capron:           

    Lisa, do you want to address attractive areas for M&A in AI?


    Lisa Chai:

    In AI, I think you're seeing this next generation of cloud services happening. And cloud is very important because without the kind of the new modern architecture that's been currently being built and I think that's why you're seeing this sort of the massive acquisitions by the PE firm. This is to take some of these companies and kind of roll it up. It would be really interesting to see what the kind of the next phase of growth, these companies going to face.

    But you're going to see a lot of, I think, consolidation and acquisitions around the cloud technology providers. Whether it's on the data analytics side or whether it's the integration or even enablement of multi-cloud solutions. So you're going to see a lot of these new terminology that's happening. And this is all very important to the AI ecosystem because you can't really run on real sophisticated advanced AI algorithms on a traditional older technology infrastructure. So, I think that some of the M&A activity will continue on that side and obviously having that SAS type of business model as very attractive.


    Jeremie Capron:

    Thank you. We have a question around portfolio construction and why not increase allocations to the top health dozen or so holdings, companies you believe are strong long-term ad performance. This is a very important piece of our investment strategy. Where, as I said the portfolios provide exposure to the best in class companies that are at the forefront of this technology revolution.

    By design we've decided to not concentrate or bets on a handful of companies and rather provide diversified exposure to the entire value chain. And so the way we do that is by combining this research route and selection of the best companies with the benefits of index investing in terms of the risk management of your portfolio. And so we, more or less equal weigh our positions. It's not exactly equal weighted because we have a scoring system that will drive the position size to some extent. But at the end of the day we have position sizes that range from just under 1% to just under 2% at the high end.

    We think that's a very good recipe in terms of providing the exposure to the theme and expressing a bullish view on robotics, AI and healthcare tech. But at the same time delivering it in a portfolio that has an attractive risk profile. That means it would take you from point A to point B in a relatively smoother way than if you take concentrated bet.

    So every investor will have a different appetite for that kind of strategy, but we think so far the results have been quite satisfactory. There's one more question on machine learning and maybe Lisa you can take that. Some companies develop machine learning capabilities in-house and others use machine learning platforms to provide their services. Do you see any difference in terms of the competitive advantages that provide?


    Lisa Chai:

    It's interesting because there are a lot of opinions around that and I think it really depends on the business solution that you're providing. We do know for sure that there is a shortage of AI talent. Some companies right now, in general, the industry is really pivoting at this point where we're forced to adopt some of these API solutions or off the shelf AI applications and packages. So some of these algorithms are going to be packed together where it's easy to deploy and easy to use and quick to deploy. And that's because we don't have enough data science talent out there.

    So there's been this massive kind of training that's happening with the software engineers and trying to steal a lot of talent away from each other, so that's what we're seeing. It's going to be interesting whether in terms of the actual in-depth analysis of the technology, whether in-house is really better than sort of the off-the-shelf. That's going to be interesting to see that. But right now I think you don't have a choice other than whether you want to spend a lot of resources around capabilities, as well as building the data science talent.


    Jeremie Capron:

    All right. Well, I think it's time to wrap up. So, I want to thank everybody for joining us today, and we look forward to talking to you again next month.

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