February 13, 2017      

Despite the popularity of automation in manufacturing and supply chain operations, as well as interest from other industries, there are relatively few investment funds dedicated to robotics and artificial intelligence. Last year, Global X Funds brought a new exchange-traded fund (ETF) to market to provide investors an opportunity to participate in emerging technologies. The robotics ETF is listed under the ticker “BOTZ.”

New York-based Global X manages 55 ETFs and said it offers investment ideas and funds organized around coming macroeconomic shifts rather than traditional vertical industries.

“A thematic suite is different from traditional investing around asset, class, or sector,” said Jay Jacobs, director of research at Global X. “We’ve increasingly found that sector investing isn’t the best way to access industries ready to take off.”

“We launched first social media ETF — it was previously a small segment of the tech sector. Last year, we rolled out a few other tech-themed suites,” he said, referring to funds dedicated to the Internet of Things (IoT) and financial technology.

Business Takeaways:

  • Global X Funds has created the BOTZ fund to help investors take advantage of opportunities in robotics, which doesn’t fit into traditional financial definitions.
  • The robotics ETF includes holdings that were carefully selected across industries and geographic regions.
  • Although there are relatively few pure-play robotics funds, interest in robotics and AI is growing from both investors and end-user companies.

“These industries aren’t as well defined,” Jacobs told Robotics Business Review. “They’re more grouped along the lines of long-term themes we expect to grow over the next 10 to 20 years. Robotics and AI are accelerating.”

The robotics market will continue to grow at 17 percent per year and will be worth $135 billion by 2019, according to market research firm IDC. It attributed much of that growth to manufacturing and healthcare.

Robotics ETF on the lookout

According to its summary, BOTZ “seeks to invest in companies that potentially stand to benefit from increased adoption and utilization of robotics and artificial intelligence (AI), including those involved with industrial robotics and automation, non-industrial robots, and autonomous vehicles.”

“The ETF invests in a handful of companies around the world — everything from large industrial automation companies to small biomedical device makers,” Jacobs said. “It’s a pretty wide gamut, and pretty hard to do on one’s own or to get exposure through traditional funds.”

Robotics ETF BOTZ can help investors grasp the emerging technology.

The BOTZ robotics ETF can help investors with the growing robotics market. (Click here to enlarge.) Source: Global X Funds

Not only is automation spread across multiple industries, but BOTZ must also watch for investment-worthy companies across regions and stages of commercialization.

“Robotics is widespread, but some companies are more forward in announcing what’s going on in their space,” Jacobs said. Many are still emerging from “stealth mode.”

“Seventy-five percent of our fund is international. About half is Japanese, and some in Switzerland,” he explained. “Limiting oneself to the U.S. is missing a big chunk of activity.”

Indexing methodology

Global X has 29 holdings in its BOTZ ETF. It had help in picking which investments to manage.

“There’s often a difference of expectations. We work with a great index-developing firm,” Jacobs said. “The index provider builds the index, weights them, and includes the portfolio and sales and marketing teams.”

“The indexing team helped us by identifying companies; we pored over dozens and dozens,” he recalled.

“One challenge for us is if Google [now Alphabet] buys up a robotics company, then the only to invest in it is [through] Google,” said Jacobs. “But 99 percent of its revenue isn’t involved in this business.”

“We’re typically looking for a certain size and close to pure-play exposure,” he said. “There are lots of robotics companies, but a lot aren’t publicly traded or are owned by larger companies.”

“It helps when they’re listed on a premiere exchange other than Nasdaq/NYSE, and we like when smaller robotics firms stay independent and focused on their core competency,” Jacobs said. “We also appreciate when these firms put out high-quality research of what they and their industry are doing.”

“Being viewed as a ‘thought leader’ in the space can be overused, but it really does have a lot of value,” he asserted. “Robotics needs to be understood by a larger audience.”

A whole new world of robotics ETFs

Jacobs said that Global X isn’t concerned about international competition, despite recent moves by Chinese investors or other funds.

“There are not a lot of robotics ETFs out there — only a few pure-play, more thematics,” he said. “We’re looking for longevity in areas such as self-driving cars and robotics.”

“In terms of the asset management world, we’re pretty early on,” Jacobs added. “You have to be. If it gets to the point that the theme is obvious, then it’s probably too late. We want to create a product well ahead of the curve. Being early is important.”

The BOTZ robotics ETF is offered by Global X Funds.

The BOTZ holdings include shares in industrial robot makers Mitsubishi Electric Corp., FANUC Corp., ABB, and Yaskawa Electric Corp.

It also includes surgical robotics leader Intuitive Surgical Inc., supply chain provider Omron Corp., and consumer robotics maker iRobot Corp.

In addition, the robotics ETF supports navigation systems company Trimble Navigation Ltd. and drone provider Parrot SA, as well as vision-based systems makers Keyence Corp. and Mobileye NV.

BOTZ is bullish on trade policy

Jacobs acknowledged that trade policies and regulations can affect the robotics investment climate.

“They can affect company valuations, but the appreciation of stock prices benefits our company,” he said. “Some regulations in Washington to reduce reliance on foreign labor could actually help robotics in the U.S.”

If the Trump administration follows through on promises to encourage wide-scale reshoring of production and improve U.S. competitiveness, that could help robotics and AI, Global X told Market Watch.

“It’s not yet totally clear what the policies will be, and second- and third-order effects of policies have yet to be determined,” Jacobs said.

“One of the best examples of robotics serving public and economic needs is in Japan,” he said. “It has adopted robotics by necessity, with a shrinking, aging labor force. It needs tasks such as manufacturing and home care to be automated.”

The U.S., which has led the world in innovation, could help satisfy such global needs for robotics and AI, and investors can help promising companies across industries through the robotics ETF.

More on Robotics Funding:

Awareness leads to interest

“Because robotics isn’t considered a classic industry in the way that semiconductors are … it’s hard for the financial world to neatly package it in a box and know where to put it,” Jacobs noted. “The fund is ultimately healthcare, industrial, military, but that’s not a bad thing.”

“Headwind doesn’t matter; we’re looking for growth,” he said. “In fact, interest is growing quickly, and there is a lot of flow into the fund.”

“Every year, there’s a review of the holdings to see if any should be added or removed, based on size, IPOs, and other factors,” Jacobs said. “I fully anticipate that the list will grow.”