Thematic investing with ETFs: Robotics & Automation

Sep 26th, 2017 | By | Category: Equities

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This article is the second in a series of five, each covering a different area of thematic investing using ETFs. The first focused on Cybersecurity, while in this article we look at how investors can take a view on the megatrend of robotics & automation through ETFs.

Thematic investing with ETFs Robotics

The global robotics and automation market is expected to grow to $1.2 trillion by 2025.

The use of robotics has surged in recent years with the market for robotics and automation expected to grow from $64 billion to $1.2 trillion by 2025.

Supported by concurrent trends such as improvements in manufacturing, computing power, connectivity and batteries, robots can now perform tasks that would have been unthinkable ten years ago.

Rather than simply repeat standardised mechanical tasks on a production line as they were initially used, robots can now react to their surroundings, display more human levels of dexterity and movement, and can even be trained.

That robotics and automation will fundamentally change the way we work and live is no longer up for debate. The question, then, is how can investors best take advantage of this megatrend? The problem with any nascent technology is that it is typically populated by companies that will doubtless be subject to much creative destruction before the eventual winners emerge.

It is this reason that makes investing in the robotics and automation trend using an ETF such a good choice, as ETFs give investors a cheap and convenient way of gaining exposure to a broad range of desired companies, and thereby making a bet on the theme rather than trying to pick which individual stocks will do well.

There are two ETFs available to European investors that will give exposure to the robotics theme: the ROBO Global Robotics and Automation GO UCITS ETF (LON: ROBO), offered by ETF Securities, and the iShares Automation and Robotics UCITS ETF (LON: RBOT) offered by BlackRock.

ROBO tracks the ROBO Global Robotics and Automation Index, which aims to offer investors access to the entire value chain of robotics, automation and artificial intelligence.

The index comprises of 83 members in total. Of those, 40 are companies involved in the production of robots or offer products and services that enable robots to “think, sense and act”. The remaining 43 members are companies that deploy robotic and automation technology into a product, service or manufacturing process to increase efficiency and productivity.

Eligible securities are classified in one of 12 subsectors covering the robotics universe by a team of robotics experts. For inclusion in the index, companies must earn a minimum amount of their revenue from robotics activities and pass certain size and liquidity constraints.

Currently, the index is weighted 45% in favour of North American equities, with Asia making up 34% and Europe contributing 20%. Large-cap stocks make up 24% of the portfolio, while mid-caps make up the largest proportion with 41% and small-caps contribute 35%.

The index has performed strongly in the recent cyclical environment, returning 35.6% in the year to 25 September.

ROBO was launched in October 2014, has assets under management (AUM) of $671 million and a total expense ratio of 0.80%. In addition to London Stock Exchange, the fund is also listed on Borsa Italiana, Deutsche Börse, SIX Swiss Exchange and NYSE Euronext.

The other European-listed ETF to offer robotics exposure, RBOT, tracks the iSTOXX Factset Automation and Robotics Index. To be eligible for the index, constituents must derive 50% or more of their revenues from business activities that fall within automation and robotics subsectors, using detailed revenue-breakdown data from the research firm Factset. Index constituents must also meet certain size and liquidity constraints. The index is equally weighted and reviewed annually in June.

The index is weighted 29.8% in favour of the USA, with the other significant country exposures being Japan (24.1%) and Taiwan (15.3%). The next largest single country exposure is the UK with 6.7%.

The iSTOXX index has also performed well recently, returning 32.9% in the year to 25 September 2017.

RBOT has proven incredibly popular with investors, amassing $844m in AUM since its launch in September 2016, including over $100m in net new assets in the past month alone. The fund has a TER of 0.40%.

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