In 2013, ROBO Global was the first firm to launch an index series based on investing’s latest favourites, robotics, automation, and artificial intelligence (AI). Just four years later, the index now has some USD4 billion in assets tracking those very sectors.
ROBO Global’s European CEO, Richard Lightbound, explains: “We were a group of investors who wanted to get our own money into the theme. A lot of us had research and sell-side backgrounds, but as we talked to experts in robotics, we decided it was much wiser not to go down the stock picking route, but instead to create an index based on expert research and quality filters.”
The resulting ROBO Global Robotics & Automation Index underpins several investment vehicles globally – including ETF Securities’ robotics ETF - and covers 88 companies in 14 different geographical sectors. Last year the index was up 47 per cent.
“The Robotics and AI opportunity is truly global,” says Lightbound. “There are more AI companies queued up for IPOs in China than in the US at the moment, but everywhere you look, the race is on, and every country is hoping for a first-place finish.”
Lightbound is more than happy that AI and robotics have gained a recent fashionability, but feels it is important that investors understand that the opportunity is much more than the latest fad.
“AI is a buzz word, so it can be easy to assume it will be here today and gone tomorrow, but robotics and AI is being used today by everyone, everywhere - from surgeons, to farmers, to factories,” he says.
“Robots have been used to do simple tasks for years, but because of new innovations in sensors, they have suddenly become amazing gatherers of data. That’s important, because the more data they gather, the better companies can apply that data to make predictive decisions about patterns of behaviour or likely events in the future.”
ROBO Global looks at 12 industry subsectors where the company sees the next round of growth and earnings coming from. “Artificial intelligence is currently the biggest subsector, and it has created a race among suppliers who are shipping robots to different parts of the industry, all of which rely on an AI component to interpret and commercialise the data their robots gather.
“FANG stocks (Facebook, Amazon, NetFlix and Google) have historically performed well for investors, but the next big digital titans are more likely to come from established capital goods companies because of how they are beginning to use data and AI across their install base.”
He cites John Deere tractor makers as an example of how AI is transforming an industry.
“The autonomous capabilities within John Deere’s tractors are quickly transitioning the company towards a technology play focused on robotics and automation,” he says.
“We see companies utilising facial recognition-type software that can identify each plant the tractor moves over, analyse the plant’s needs, and then deliver the right amounts of water and fertiliser treatment, saving on costs and increasing crop yield.
“There is nothing we can’t automate and make better,” he says. “Whether it’s how we receive surgery or care for our elderly, technology enables us to do things better, and we naturally want that.”
His firm primarily focuses on industry research, and the index is their main product combined with advisory services to fund groups.
The index is a hypothetical basket of stocks drawn from an internal database based on rules and quality filters. They estimate the market opportunity for Robotics, Automation and Artificial Intelligence will be measured in the low USD trillions by 2035.
The index is rebalanced every quarter to re-set the weights of the index constituents. The top catalyst for change is M&A activity, with nine takeouts of companies acquired within the index since inception. Second to that are additions to the index as new companies are identified using their stringent quality filters. Each company is defined as either ‘pure play’ -meaning it already has high revenue associated with the theme or ‘emerging pure play’ -meaning the company is quickly increasing its focus on robotics and automation.
“We give a higher weight to pure plays, and companies can move from the lower weight to higher weight as they pass revenue thresholds.”
The company also has an internal ESG policy applied during this filtering process. “There is a social debate around robotics, but we believe robotics, automation, and AI are naturally beneficial for society. We spend a lot of time travelling in Asia, and most of these countries are very positive about the impact of these technologies, but in the west, the sentiment is very mixed. The economies that fully embrace the sector now will be the first to see the benefits,” he says.
He observes that the biggest risk from AI will not come in the form of lost jobs or AI dominance over humans, but from the misuse of data and cybersecurity failures. “Those who are wary of AI need to realize that despite the rate of technology advancement, the natural pace of change is slower than we imagine. We are not going to wake up to a world filled with fully autonomous vehicles overnight. The transition will happen in increments. Ultimately, the changes will be good for society as a whole.”
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