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Battleground – Robotics, Automation and AI
With the onset of COVID-19 and the lockdowns that followed, the move to digital accelerated, becoming a shift of necessity rather than choice. The move occurred almost seamlessly. Bricks-and-mortar retailers shifted online, triggering a move to digital with buy-now, pay-later (BNPL) vendors popping up offering solutions to replace physical cash. This is just one example of a dramatic technological expansion. We are in the midst of a “Fourth Industrial Revolution,” a new era that builds on digitisation and develops new products from advanced technologies such as artificial intelligence (AI), machine learning, augmented reality, and the Internet-of-things.
What is clear and certain, is that the advent of machines powered by artificial intelligence has already started to influence the world and the way we live. In this article we compare two innovative ETFs that give investors exposure to the companies leading the robotics and AI megatrend.
BetaShares Global Robotics and AI (ASX: RBTZ)
In 2018, Betashares launched an ETF that tracks the Indxx Global Robotics and Artificial Intelligence index, which follows companies involved in the industrial robotics supply chain, ranging from automation to non-industrial robotics, unmanned vehicles and drones, and artificial intelligence.
Betashares says: “Robotics involves the idea, design, creation, and application of programmable mechanical devices that can perform tasks and interact with their environments without human input. Artificial intelligence is a division of computer science that emphasises the conception of intelligent machines that can work, react and learn like humans in order to recognise speech, plan and solve problems.”
Underlying investments
The most recent reporting showed a total of 31 companies in the portfolio, with the major investment holdings as follows:
One thing that stands out from this table is that most are domiciled in Japan, then the US and Switzerland. Japan has long been seen as a future model for China or even Australia as it has successfully moved further along the supply chain over several decades to become a leader in cutting-edge machinery and technology exports.
Readers will also see there is a strong weighting towards industrial machinery, electronic equipment and healthcare equipment. This thematic played out particularly well during COVID-19, as the world went into lockdown and e-commerce platforms took centre stage. To manage warehouse demand, the bigger retailers such as Amazon and Walmart increased their use of robots alongside humans in their dark warehouses. The largest holding in the portfolio is Fanuc Corp – an innovative Japanese manufacturer of factory automation and robots.
Performance
Not unexpectedly, the performance to 31 December 2020 was strong. The fund did exceptionally well in 2020 posting a 36.1 per cent gain, which was not far behind the tech-driven Nasdaq Composite’s return of 43.6 per cent, but well ahead of the S&P 500, which added 16 per cent.
ETF Securities – ROBO Global Robotics and Automation ETF (ASX: ROBO)
ETF Securities was the first to market with its ‘Future Present’ strategies, launching itsown ROBO or Global Robotics and Automation ETF in September 2017. ROBO aims to track the performance of the ROBO Global Robotics and Automation Index. ROBO uses a full-replication strategy to track the index, meaning it holds all the shares that make up the index in proportion to their index weights.
The ROBO ETF is a somewhat different to its Betashares counterpart in that it targets a slightly different area of robotics, and holds around 87 individual companies. The ROBO ETF is focused on robotics and AI in areas such as manufacturing, 3D printing, logistics and security, whereas the Betashares ETF is more focused on robotics in e-commerce, warehousing and healthcare. It’s also noteworthy that the top companies in the ROBO ETF are mainly US-domiciled.
Holdings and Sector/Country Allocation
ETF Securities says “for the selection process, the Index classifies companies as either (1) “bellwether” stocks, the majority of whose business is related to robotics and automation; or (2) “non-bellwether” stocks, that have a distinct portion of their business involved in robotics and automation.” The index allocates 40 per cent to “bellwether” and 60 per cent to “non-bellwether” and equally weights stocks within the two categories.
Performance
As expected, ROBO also delivered a strong 2020, benefiting from the forced changes in the global supply chain.
In the chart below, sourced from Trading View, we compare the two ETFs, Betashares RBTZ (red) and ETF Securities ROBO (blue) and clearly both are closely correlated, with ROBO returning slightly higher.
Summary
Both Betashares RBTZ and ETF Securities ROBO have grown assets significantly in 2020, hitting about $129 and $195 million in assets under management respectively, suggesting they won’t be going away soon.
Investing in BetaShares RBTZ will give you exposure to industrial robotics and automation, non-industrial robotics, unmanned vehicles and drones, and artificial intelligence. Whereas investing in ETF Securities ROBO is more of a pure-play on world-leading robotics and AI companies. ROBO charges a management fee of 0.69 per cent pa, while RBTZ charges 0.57 per cent pa.
