While some investors salivate over the prospects for a bitcoin exchange-traded product, one of the hottest thematic investment ideas, robotics and automation, has been available as an exchange-traded fund for nearly five years.
The oldest robotics ETF, the ROBO Global Robotics & Automation Index ETF (ROBO), launched in 2013 and returned more than 44 percent in 2017 as interest in robotics funds surged. In 2017 alone, ROBO attracted $1.5 billion in new assets and now has nearly $2.4 billion in AUM. As of March 7, ROBO has three-year average annualized returns of 18.7 percent.
Launching ROBO was an attempt to grab the information technology revolution by the horns, says Chris Buck, head of capital markets and sales for ROBO Global.
“We recognized early on that robotics is an enabling technology that was going to revolutionize many other segments of the economy,” he says. “This could be a paradigm shift equal to the printing press.”
Buck says that robotics, automation and artificial intelligence are exponential technologies. The industrial robotics movement was born in the 1960’s when auto manufacturers introduced robots on their assembly lines. By 2017, robotics was a $64 billion industry, according to Buck, and by 2025 it could grow to $1.2 trillion.
Robotics and automation will impact all industries, expanding from its origins on industrial assembly lines into health care, banking, transportation, logistics, security and energy. Robots improve companies’ capital efficiency and productivity by augmenting human abilities.
The automation trend is already in full swing, with robots being deployed as surgical assistants and guides, drivers and drones, and warehouse pickers, among other uses. Neural networks are transforming computers into sophisticated decision makers that can rival humans. And as robots become more capable of automating complex tasks, they will wield greater influence over the economy, Buck says.
Bucket List
In 2013, it wasn’t clear from an investment perspective which companies would come to market with the best solutions in automation and robotics, Buck says.
“The challenge was that nobody had thought about what fits into the bucket of what we pre-defined as ‘innovative thinkers’ in robotics and automation, so we had to enlist specialists in the field,” he says.
As its name implies, the ROBO fund tracks the ROBO Global Robotics and Automation Index containing 92 equally weighted stocks. The index classifies a proprietary global database of companies into 12 robotics and automation subsectors. The methodology screens companies for revenue derived from automation and robotics, and selects firms that are positioned as market and growth leaders in robotics.
It then applies additional filters for liquidity, market capitalization and ESG, whittling down a database of more than 1,000 companies to fewer than 100.
Over half of ROBO’s investments are mid-caps, and more than 20 percent of the portfolio is in small-cap stocks. The U.S. accounts for 41 percent of ROBO’s holdings, with nearly 27 percent coming from Japan and another 12 percent coming from Europe.
Top holdings include iRobot, the maker of the Roomba vacuum cleaner, and Mazo Robotics, a designer of a robotic guidance system for spinal surgery.
ROBO carries a 0.95 percent expense ratio.
While a couple of larger ETF sponsors have entered the robotics fray, ROBO Global believes its focus on one suite of products derived from its index makes it distinctive.
“We’re a boutique firm with a specialized niche, and 100 percent of our resources are spent researching and thinking about this,” says Buck. “We’re aware that people want to bring similar products to market, but we want, if possible, to bring out the value in these trends by being a focused firm.”
The Global X Robotics and Artificial Intelligence ETF (BOTZ) was launched in 2016 and already has nearly $2.4 billion in assets. The fund tracks the Indxx Global Robotics and Artificial Intelligence Thematic Index.
Compared to ROBO, BOTZ is less technology oriented, focusing instead more on industrials. The Global X offering is also less domestically focused than Robo Global’s ETF.
BOTZ outpaced ROBO in 2017 with total returns of 58 percent. It sports an expense ratio of 0.68 percent.
The just-launched First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT) tracks the Nasdaq CTA Artificial Intelligence and Robotics Index, which identifies robotics- and AI-related companies as enablers, enhancers and engagers, depending on their business relationship to the technology. Enablers develop AI and robotics components, while enhancers offer value-added services within an AI or robotics environment.
The ROBT fund’s index attempts to prioritize investing in “engagers,” the companies building and delivering AI and robotics. To be included in the index, companies must have a minimum market value of $250 million and a three-month average daily trading volume of at least $3 million. ROBT has an expense ratio of 0.65 percent, making it the most inexpensive robotics-focused ETF.
Buck says a fund such as ROBO can be deployed as part of the equity portion of any portfolio.
“It adds some unique diversification to portfolios,” he offers. “The quick thinking is that robots are niches and that people shouldn’t buy niches, but we think ROBO does some cool things. If you ripped off the name and we called it some sort of factor ETF at the portfolio level, people might look at it as a useful portfolio tool.”