Despite rising Treasury yields straining stock valuations, AI and ChatGPT hype continues to boost the stock market, with the Nasdaq Composite Index returning over 26% YTD as of Q3.
We are pleased to introduce this month’s portfolio in Robotics US. Created in late 2016, this strategy focuses on US robotics opportunities, spanning industries like healthcare, consumer products, home applications, agriculture, logistics, and entertainment.
While robots have been in the automotive industry for decades, recent advances in AI robotics have diversified their applications. Notably, NVIDIA’s stock, a portfolio holding, nearly tripled in value YTD as of Q3, thanks to its leadership in generative AI chips.
Our methodology involves creating a universe of stocks related to the robotics theme. This is achieved by analysing reports from industry organizations with expertise in robotics, as well as sell-side investment and asset management research.
To ensure sufficient stock trading liquidity, we select stocks with a daily liquidity exceeding USD 2 million, measured by the median turnover over the last six months. We filter out stocks with drawdowns exceeding 20% to align with the trend of AI winners. Additionally, we require that these stocks are covered by a minimum of 6 equity analysts, with an aggregate recommendation rating greater than 3 on a scale from 1 (weakest) to 5 (strongest).
To refine our selection further, we identify high-quality investments based on return on invested capital (ROIC). The portfolio is constructed with the top 15 stocks meeting all these criteria.
Our strategy also incorporates a downside risk hedge using inverse volatility weights. This means that less volatile stocks over the last six months will have higher weights in the portfolio, enhancing stability during market downturns and resilience in extreme scenarios.
As of Q3 2023, our strategy has excelled in both short- and long-term perspectives. Since inception, it has delivered over 174% alpha compared to the S&P 500. With the rise of semiconductor stocks in the AI sector, the strategy continues to outperform the S&P 500 by approximately 7% year-to-date (YTD), despite a recent drawdown.
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