Innovation is the driving force behind transformative, disruptive change across a variety of industries. In May, whether it was Chinese EV manufacturers, AI-driven cybersecurity, cloud computing infrastructure in India, or innovations in genomics thanks to AI-powered insights, strategic investment played a significant role in the eight sectors covered by the Evolve Innovation Index Fund (EDGE ETF).

Sector Specific Updates 

Automobile Innovation

Chinese electric car manufacturers like BYD Auto, NIO, Zeekr, and Ora are emerging as formidable competitors to Western and Japanese EV brands, even in their domestic markets. With their rapidly advancing technology and affordable pricing (sometimes 25% less than a Tesla), even Tesla’s CFO describes their success as “scary.”

Each Chinese EV manufacturer takes a different tack to win business, with some focused on competitive pricing, while others prioritize performance and advanced features to attract customers, thereby increasing the pressure on premium Western and Japanese EV manufacturers.

For example, NIO Inc’s latest luxury SUV model, the ES6, is slated for a European launch later this year. The vehicle boasts voice-activated controls and an impressive 610 kilometres range per charge. Consequently, it aims to carve a European niche for itself in the premium SUV segment.

The robust growth in sales of electric vehicles and hybrids in China is undeniable, almost doubling last year to reach 6.9 million units—fully half of the global total. This growth has been facilitated by billions of dollars in subsidies from the Chinese government, whose goal is to position China as a pioneer in EVs and clean energy more broadly. So, it was only a matter of time before these EV manufacturers looked beyond their own shores.¹

Cybersecurity

Hackers are using generative AI and ChatGPT to fine-tune ransomware and social engineering email-based attacks, leading to an increasing number of breaches. AI-enhanced threat actors are also exploiting unsecured gaps between endpoints and identity protection, showing that CISOs and other enterprise security experts are underprepared for cybersecurity in the age of artificial intelligence. These are among the conclusions of a new report from Forrester on the top cybersecurity threats in 2023. The report suggests that augmented by AI, threat actors will be able to attack any sector and any business with a speed, scale, and complexity of attack not previously possible.²

One such example comes from security firm Zscaler, who recently averted a social engineering attack from hackers using a synthesized soundalike of CEO Jay Chaudhry. The hackers used recordings of Chaudhry’s voice from talks available on the internet to build the audio doppelgänger using AI. This soundalike tried via phone to get a Zscaler sales director in India to transfer funds to a bank in Singapore. Zscaler cited the availability of AI as part of the 47% rise the company has seen in phishing attacks over the last year.³

Cloud Computing

Amazon Web Services (AWS) revealed ambitious plans in May to invest $12.7 billion USD in the Indian cloud infrastructure market by 2030. The announcement, made during the AWS Summit in Mumbai, reflects AWS’s commitment to meeting the escalating demand for cloud-based services from Indian customers.

This substantial investment will focus on bolstering India’s data centre infrastructure, paving the way for over 130,000 full-time equivalent jobs in various sectors each year, including construction, engineering, and telecommunications.

This recent announcement builds upon AWS’s previous investments in India, which total more than $3.7 billion between 2016 and 2022 and includes training more than four million people in cloud skills. Additionally, a 2021 study commissioned by Amazon found that companies in the Asia-Pacific could reduce their carbon footprint more than 78% by transitioning from on-premises data centres to the cloud, so the AWS move will also contribute to renewable energy projects in India.⁴

E-Gaming

After a rocky month in April, in which Microsoft saw the U.K.’s competition authority block its proposed $69 billion acquisition of gaming company Activision Blizzard, the tech giant received some good news from European and Chinese regulators in May.

The European Commission announced that Microsoft’s proposed remedies for the emerging field of cloud gaming—namely, that users would have the ability to stream Activision games on non-Microsoft cloud streaming platforms after purchase—had allayed their antitrust concerns and that the deal could proceed.⁵

Likewise, China’s State Administration also gave the Microsoft-Activision Blizzard deal the go-ahead in May, bringing the total number of national regulators supporting the deal to 37, including those in the EU and Japan. Collectively, these regulators represent a staggering two billion people.⁶

The remaining holdout, then, is the U.K.’s Competition and Markets Authority. Microsoft has announced its intention to challenge the U.K.’s decision through appeal.

The deal is still awaiting approval in the United States, with the Federal Trade Commission (FTC) set to decide in August. A clear consensus has yet to emerge amongst legal experts about how the FTC might rule.⁷

Genomics

The power of AI-driven innovation continues to show itself in the healthcare and pharmaceutical space. In May, researchers at McMaster University announced they had used AI to discover a potent new antibiotic, called abaucin, that can kill a deadly superbug known as Acinetobacter baumannii.

The researchers trained an AI to recognize the chemical structure of thousands of known pharmaceuticals and how they interacted with A. baumannii. They then provided the AI with a list of 6,680 compounds whose effectiveness against the bacterium was unknown. The AI worked up a shortlist of 240 promising potential drugs from those thousands of compounds in just an hour and a half. Studying the candidates on that shortlist, scientists found nine likely antibiotics, including abaucin.

The use of AI in scientific research holds the promise of accelerating the discovery of new therapies and saving lives. While abaucin requires further testing, the researchers say they expect the first AI-derived antibiotics to be prescribed by 2030.⁸

Fintech

Shopify announced a realignment of some elements of its business in May, as the e-commerce platform looks to refocus on its core mission of helping online merchants.

Shopify will sell the majority of its logistics business (including staff, technology, and services) to tech-driven global logistics firm Flexport. This logistics business (which Shopify built as a “port to porch” solution) will maintain the seamless integration into Shopify’s online tools that merchants rely on for speed, flexibility, and affordability in order fulfillment.

As part of the deal, Shopify will receive 13% equity interest in Flexport (all stock), as well as the right to name a director to Flexport’s board.

The news of the logistics sale came as part of Shopify’s Q1 financial reporting. For the quarter, Spotify’s total revenue was $1.5 billion, up 25% year-over-year, with Merchant Solutions revenue (up 31% to $1.1 billion YoY), Subscription Solutions revenue (up 11% to $382 million YoY), and Monthly Recurring Revenue (up 10% to $116 million YoY) all seeing increases.⁹

Robotics & Automation

FANUC America (held by the Fund) introduced two new high-payload capacity collaborative robots—called ‘cobots’—in May. These new cobots significantly increase the payload capacities of FANUC’s CRX and CR cobots. The CRX cobot will up its capacity from 4kg to 30kg, while the CR cobot line will increase its capacity to 50kg. These upgraded models greatly expand the kind and variety of tasks the cobots can accomplish.

The CRX and CR cobots join nine other cobot models produced by FANUC that accomplish a variety of industrial roles, including assembly, picking, packaging, palletizing, and welding, amongst others.

FANUC has seen substantial growth in sales of its cobot line. The cobot’s task flexibility and small footprint on a factory or warehouse floor have made the line particularly attractive to companies new to automation but who need robotic assistance to boost productivity and alleviate labour shortages.¹⁰

5G

Apple Inc signed a new multibillion-dollar deal for Broadcom Inc to supply 5G radio frequency components for Apple devices. The deal includes parts for wireless connectivity that help focus signals and reduce interference for mobile devices. These parts will be designed and built at Broadcom facilities in the United States.

The deal is part of Apple’s 2021 promise to spend $430 billion into the U.S. economy within five years. It is also part of Apple’s strategy to re-shore and diversify elements of its supply chain so as to avoid future shortages from overseas like those experienced during the pandemic. Overall, Apple is spending billions to build out and develop 5G technology to help it dominate the future of the consumer electronics space.¹¹

Investing in Innovation with EDGE ETF

The Evolve Innovation Index Fund (EDGE ETF) is an 8-in-1 innovation fund that invests in disruptive innovation themes across a broad range of industries, including: cloud computing, cybersecurity, egaming & esports, automobile innovation, 5G, fintech, genomics, and robotics & automation.

Portfolio Strategy and Activity

For the month, Evolve Cyber Security Index Fund (CYBR ETF) made the largest contribution to the Fund, followed by Evolve Cloud Computing Index Fund (DATA ETF), and Evolve Automobile Innovation Index Fund (CARS). The largest detractors to performance for the month were PayPal Holdings Inc, followed by Agilent Technologies Inc and Global Payments Inc.

For more information on EDGE ETF, visit our website at https://evolveetfs.com/edge/ or click here. Give your portfolio an EDGE.

Sources:

1. McDonald, J., & Kageyama, Y., “Chinese electric vehicle brands expand to global markets,” ABC News, May 1, 2023; https://abcnews.go.com/Business/wireStory/chinese-electric-vehicle-brands-expand-global-markets-99002556
2. Columbus, L., “Forrester predicts 2023’s top cybersecurity threats: From generative AI to geopolitical tensions,” VentureBeat, May 22, 2023; https://venturebeat.com/security/forrester-predicts-2023-top-cybersecurity-threats-generative-ai-geopolitical-tensions/
3. Menn, J., “Cybersecurity faces a challenge from artificial intelligence’s rise,” The Washington Post, May 11, 2023; https://www.washingtonpost.com/technology/2023/05/11/hacking-ai-cybersecurity-future/
4. Bourne, J., “AWS to put $13 billion into India cloud infrastructure by 2030,” Cloud Tech, May 22, 2023; https://www.cloudcomputing-news.net/news/2023/may/22/aws-to-put-13-billion-into-india-cloud-infrastructure-by-2030/
5. Kharpal, A., “EU approves Microsoft’s $69 billion acquisition of Activision Blizzard, clearing huge hurdle,” CNBC, May 15, 2023; https://www.cnbc.com/2023/05/15/microsoft-activision-deal-eu-approves-takeover-of-call-of-duty-maker.html
6. Fineman, J., “Microsoft’s planned $69B Activision purchase gets China antitrust approval – report,” Seeking Alpha, May 19, 2023; https://seekingalpha.com/news/3973465-microsofts-planned-69b-activision-purchase-gets-china-antitrust-approval-report
7. Valentine, R., “China Approves Microsoft’s Acquisition of Activision Blizzard,” IGN, May 22, 2023; ign.com/articles/china-approves-microsofts-acquisition-of-activision-blizzard
8. Gallagher, J., “New superbug-killing antibiotic discovered using AI,” BBC News, May 25, 2023; https://www.bbc.com/news/health-65709834
9. “Shopify Announces First-Quarter 2023 Financial Results; Agrees to Sell Shopify Logistics to Flexport,” Shopify, May 4, 2023; https://news.shopify.com/shopify-announces-first-quarter-2023-financial-results-agrees-to-sell-shopify-logistics-to-flexport
10. “FANUC America Introduces High-Payload Cobots and Demonstrates Industry-Leading Automation Solutions at Automate,” FANUC America, May 18, 2023; https://www.fanucamerica.com/news-resources/fanuc-america-press-releases/2023/05/18/fanuc-america-introduces-high-payload-cobots-and-demonstrates-industry-leading-automation-solutions-at-automate
11. Gurman, M. & King, I,. “Apple Extends Broadcom Pact With Multibillion-Dollar 5G Deal,” Bloomberg, May 23, 2023; https://www.bloomberg.com/news/articles/2023-05-23/apple-signs-multibillion-dollar-deal-with-broadcom-for-5g-parts

 

The contents of this blog are not to be used or construed as investment advice or as an endorsement or recommendation of any entity or security discussed. These contents are not an offer or solicitation of an offer or a recommendation to buy or sell any securities or financial instrument, nor shall it be deemed to provide investment, tax or accounting advice. The information contained herein is intended for informational purposes only.

Commissions, management fees and expenses all may be associated with exchange traded funds (ETFs) and mutual funds (funds). Please read the prospectus before investing. ETFs and mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. There are risks involved with investing in ETFs and mutual funds. Please read the prospectus for a complete description of risks relevant to ETFs and mutual funds. Investors may incur customary brokerage commissions in buying or selling ETF and mutual fund units.

Certain statements contained in this blog may constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking information may relate to a future outlook and anticipated distributions, events or results and may include statements regarding future financial performance. In some cases, forward-looking information can be identified by terms such as “may”, “will”, “should”, “expect”, “anticipate”, “believe”, “intend” or other similar expressions concerning matters that are not historical facts. Actual results may vary from such forward-looking information. Evolve Funds undertakes no obligation to update publicly or otherwise revise any forward-looking statement whether as a result of new information, future events or other such factors which affect this information, except as required by law.