Investing in Robotics & Automation

From the earliest agricultural machinery to today’s high-speed welding robots used in manufacturing, we have been automating dull, dirty, and dangerous work for nearly a century. But the realms robotics have recently entered have far exceeded what humans previously imagined possible. Just as the Internet transformed how we work and communicate, robotics and artificial intelligence (AI) are changing the fundamental structure of sectors across the economy.

Drones are being used to survey the health of crops, surgical robots are conducting over one million procedures each year, and autonomous vehicles are making delivery treks. This is all being made possible due to the convergence of declining technology costs, increasingly reliable performance capabilities, and the availability of massive amounts of data fueling machine learning and intelligence.

For investors, the name of the game is to look toward the growth and disruption potential of the technologies of tomorrow. Since the ROBO Global Robotics & Automation Index (ticker: ROBO) was established in 2013, a dozen competing strategies have come to market around the world. ROBO Global is the only company that combines active research with industry experts to take a forward-looking view of the opportunities. Our index provides investors with pure-play exposure to best-in-class robotics and automation companies as well as enabling technologies.

Getting to this moment

When we first launched the ROBO index, many investors were not attuned to the expansive potential of robotics and automation beyond factory applications. Yet, we saw the signs forming and believed that it was just the beginning of a multi-decade transformation that would influence every aspect of how we, and future generations, live and work. The tremendous growth in robotics and automation is occurring due to a few key factors:

1. Improving Technology
2. Wider Deployment
3. Macro & Social Changes

How Covid-19 has accelerated the demand for robotics

While this technological revolution is still in its infancy, the COVID-19 pandemic has shed an enormous spotlight on the clear need for automation and robotics technology across all sectors of the economy. The turbocharging of digitization, the work-from-home culture, and the surge in demand for rapid e-commerce fulfillment and touchless deliveries have created clear gaps that only technology can fill. The use of robotics and automation create safer and more efficient workplaces, from factories to hospitals to offices, and has been crucial to companies during the downturn. In these ways, we believe that COVID-19 has both validated and accelerated the investment case for robotics and automation. The ROBO index also has very little exposure to the sectors worst affected by the crisis: energy, travel, hospitality, and traditional retail.

The modern corporate tale: disrupt or be disrupted

Before the COVID-19 pandemic, corporate giants globally had understood this vision of the future, aggressively deploying capital to develop and acquire the technologies needed to take their businesses to the next level. The choice, they knew, was simple: disrupt or be disrupted. As companies rush to leverage and build on all that robotics and automation have to offer, the pace of acquisitions has continued to accelerate.

Capturing the complexities of the robotics revolution

Never have we seen such an explosive mix of exponential technological change, an abundance of disruption, and high levels of mergers and acquisitions. Since the initiation of the ROBO Global Robotics & Automation Index in 2013, 25 of its members have received takeover offers—reflecting the increasingly high value given to robotics, automation, and AI technologies by large companies.

The challenge for investors is how to best invest in this theme, as this is a highly unstructured universe of companies with rapid technological advances suddenly changing the landscape across the many areas of society where we see robotics and automation deployed.

Investors who hope to capture this complexity will seek superior risk-adjusted returns by building a diversified portfolio of industry leaders across geographies, small and large companies, and technologies and applications. Additionally, they will rely on the guidance of industry experts, academics, and entrepreneurs to select tomorrow’s growth leaders and to provide them with the knowledge and insights to more accurately foresee emerging trends, identify the most promising new technologies, and understand the intricate interactions between technologies and their specific applications.

An index approach to investing in Robotics & Automation

Because robotics and automation cut across traditional industry classifications, we believe active research is essential for identifying best-in-class companies at the forefront of this theme. And because the theme targets rapidly growing areas of the economy, active research is vital in ensuring the index portfolio can evolve with the theme. A static index based solely on backward-looking data and historical business models, in contrast, may not capture the fast-changing dynamics of the markets involved.

A strategy that includes broad exposure to the global value chain may be a more prudent approach. This broad exposure may include not only large-cap participants, but also providers of both the key enabling technologies (sensing, computing, machine learning, actuation, etc.) and the applications that deliver capabilities in every industry (factory automation, surgical robotics, food and agriculture, 3D printing, logistics automation, and more). For investors seeking a way to future-proof their portfolio with robotics and AI, these are the details that matter. At ROBO Global, we strive to deliver a research-driven portfolio, focused on providing long-term growth. The time to invest in all that robotics, automation, and AI have to offer is now, and investors would be wise to consider using the ROBO index to gain diversified exposure to this innovation.