23 Sep, 2016 image

Know What Your Robotics & AI Investment is Doing for You

It takes dedicated experts many years to learn and understand the universe of robotics as an investable space. Make sure the experts really know their stuff and come with a robotics pedigree.

True robotics and automation companies are difficult to find through commonly used classification systems and their traditional investment sectors. It takes a deep bottom-up analysis of companies and dedicated expertise in that field to understand from the top-down the technology and applications that are driving the robotics megatrend. A simple analysis of publicly-listed “tech” companies will not capture the robotics ecosystem. This is why we’ve seen investment portfolios in “robotics and automation” differ widely and often with less commonality than expected. We believe that this all comes down to the approach and depth of understanding in what will drive the robotics megatrend growth.

We focus on the interaction between technology (e.g. processing, actuation, computing, integration, sensing) and its applications (e.g. consumer products, agriculture, 3D printing, security, healthcare, logistics, manufacturing, energy) to bring investors a transparent approach to investing through the experience of a dedicated team of experts, academics, entrepreneurs and investment professionals. They are focused full-time and only on analyzing the robotics and automation universe, identification of trends and understanding future growth opportunities. We track over 1,000+ private and public companies globally which is then screened through our proprietary ROBO Global® Industry Classification system of 13 subsectors to bring an investible universe that identifies market leaders with strong growth prospects and revenue generation in robotics and automation. This classification system and our ROBO Global® Robotics and Automation UCITS Index are maintained and managed by our leading team of experts- more information about the team is set out below including their individual stories ranging from the desire to invest in robotics (but previously couldn’t) to developing the autonomous robots that make Amazon efficient.

We’ve seen robotics investments that include common large-cap equities and non-robotic exposures. Understand how your robotics investments interact with the rest of your portfolio.

It’s puzzling to us when we see certain companies in a “robotics and automation” portfolio. Whilst the ecosystem does include certain large global brands as users of the technology or have a non-core branch that is developing robots, a lot of the opportunity and growth is actually in emerging companies. A lot of these are private and some are public small- and mid-cap companies. These companies develop the technology or deploy the technology to a product, service or manufacturing process to increase efficiency or productivity which are essential to the growth in the robotics megatrend. Our proprietary ROBO Global® Industry Classification system and ROBO Global® Robotics and Automation UCITS Index captures these companies to offer high-growth opportunities and low correlation to other common equity benchmarks.

Often, investors are looking to robotics and automation for long-term growth but also for true diversification from other parts of their portfolio for an alternative source of return. We’re confident that our index provides that to investors and would suggest looking at a “robotics and automation” portfolio more carefully to understand how it’s managed and constructed. More importantly, investors should analyze how the holdings fit with their existing portfolio to minimize unintended consequences of correlation and overweighting certain large-cap exposures that are found in equity benchmarks or holdings. For example, the ROBO Global® Robotics and Automation UCITS Index carries a small 2% overlap with the S&P 500 or MSCI World Index offering investors unique exposure they are unlikely to be carrying in their portfolios today.

Robotics investing is about capturing a megatrend before the winning companies are clear. Position and diversify your portfolio so that it’s focused on a pure robotics exposure whilst managing risk within that investment universe.

We strongly advocate an investment approach that differentiates the key contributors to robotics and automation versus those which have a relatively smaller focus (but still an important contributor). This allows for more emphasis towards companies which are strongly linked to the growth of this megatrend. At the same time, we are too early in this megatrend to clearly identify winners with confidence due to many competing technologies and the importance of securing patents effectively. Accordingly, we believe in an investment approach that maximizes exposure to the growth of the robotics and automation megatrend and diversify portfolio risk by holding sufficient companies that focus on robotics in their core business.

WHY ROBO?

The ROBO Global® Robotics and Automation UCITS Index provides a simple, transparent, cost-effective and rules-based approach along with quarterly rebalances and a two-tier equal weight system. Within our equal weighting system, we currently have 22 bellwether (or pure play) companies which are well established market leaders in robotics and automation and 57 non-bellwether companies which have a smaller but distinct portion of their revenues devoted to robotics and automation which is positioned to rapidly grow as their products and/or services expand. Each bellwether carries approximately double the index weight versus a non-bellwether. The index is designed to bring stability to a high-growth industry through balanced diversification, currently across 79 companies and 15 different geographies. The small to medium market cap universe is where investors need exposure to truly capture the inherent growth opportunity from robotics and automation. The ROBO Global® Robotics and Automation UCITS Index carries close to 80% of its portfolio within small to medium cap companies from around the globe.

Traditional financial analysis by industry generalists will not capture the full universe of companies connected to the robotics and automation theme. In the same manner, strategies focused on large-cap names with minimal association or purity to robotics and automation will miss much of the broader growth opportunity for investors and potentially lead to unintended over-exposure to a particular stock that may already be in an investor’s portfolio.

Robotic investment products come with different approaches and costs. Don’t just look at the cost, make sure you’re getting the value you want through a real exposure to robotics and automation with an appropriate performance track record.

INSIDE THE INDEX

Our ROBO Global® Robotics and Automation UCITS Index is designed to (1) understand and define the sub-sectors and companies within the comprehensive ecosystem and (2) track the growth trend in play with relevant and diversified coverage. This bottom up and top down approach ensures we capture and measure the entire value chain and performance of robotics, automation and enabling technology companies across our 13 subsectors and current 15 geographies. As stated above, this requires a deep understanding of the robotics and automation universe by robotics-only experts ranging from academics, entrepreneurs and investment specialists to bring an effective solution.

Robotics and automation investment cannot be done effectively by purely relying on systematic data analysis or financial analysis of “tech” companies. It needs a much more robust “ top-down ” and “bottom-up” approach that is entrenched by a deep understanding of the robotics ecosystem. So while you may find that costs may range widely when buying a robotics investment product, the purity and the robustness of the portfolio construction should not be underestimated. Within our team of experts, we’ve been participating in the robotics space for over a decade with live index performance which illustrates a proven track record.

In our ROBO Global® Robotics and Automation UCITS Index, year to date performance (to 9 September 2016) is up 13.1%, the 3 Year EPS Growth is 51.6% and the Sharp Ratio is 1.5. The consistency of the longer term performance, as well as the low correlation to other equity investments, should be used to determine whether the investment is good value to investors. The consistency of the longer term performance, as well as the low correlation to other equity investments, should be used to determine whether the investment is good value to investors.

 

Written by: Richard Lightbound, CEO EMEA

 

*Data Sourced From Bloomberg

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