Investing in themes like robotics, 3D printing, synthetic biology, or nanotechnology isn’t easy to do sometimes given that most truly disruptive technologies are in early stages and not so many investing opportunities exist for retail investors. There are any number of exciting startups to invest in but most are off access to retail investors unless they IPO or are acquired by a publicly traded company. It is this “lack of opportunity” that over-the-counter (OTC) companies try to take advantage of when they target excited retail investors who saw the Dateline special on stem cell research and now want to dump half their life savings into it. Whenever looking at a theme to invest in, you should always diversify across multiple stocks to reduce risk (and never invest in OTC companies). This is why ETFs are so popular.
Let’s take the theme of “robots or robotics”. You don’t need to educate the public about what robotics technology is capable of. Whether accurate or not, we’ve been inundated with ideas of what robots are capable of thanks to Hollywood’s liberal use of this futuristic technology in movies. While some see robots as threatening our livelihoods, others see it as a tremendous investment opportunity. There is no doubt that recent advances in technology will propel the use of robotics to unseen levels in the coming years. Here’s a chart take from a recent Boston Consulting Group report called “The Rise of Robotics“:
Industrial robots are a huge part of that growth. So how can retail investors get a piece of this action? While we have looked at a few robot stocks like iRobot (NASDAQ:IRBT) and Cognex (NASDAQ:CGNX), there is actually an ETF available called the Robo Global Robotics & Automation Index ETF (NASDAQ:ROBO). Established in 2013 and with $93 million in assets so far, ROBO is a collection of over 80 different robotics and automation stocks around the globe. The ROBO index methodology divides this list of stocks into two broad categorizations:
Bellwether (40%): “Stocks which derive the majority of their revenues from robotics and automation or are a market share leader”
Non-Bellwether (60%): “Stocks that have a distinct segment of their business involved in robotics and automation that is expected to drive revenues higher as such products and/or services expand”
When we look at investing in a theme, we like to look for bellwether opportunities or what we call “pure plays”. Companies may be creating robots that can deliver room service and do inventory in grocery stores but we’re not going to invest in Starwood and Walmart because they’ll benefit from robotics and we want a piece of that action. While we actually do hold shares in Walmart, it’s for an entirely different reason. In this case, we want to invest in companies whose revenues are directly related to robotics and automation. With that said, let’s take a closer look at the 20 “bellwether” constituents of the ROBO ETF as of September 30th 2015.
|Hiwin||2049||Industrials||Motion control products|
|Lincoln Electric Holdings||LECO||Industrials||Robotic cutting and welding|
|Nabtesco||6268||Industrials||Joints for industrial robots|
|ABB Ltd.||ABB||Industrials||Process automation and robots|
|Rockwell Automation||ROK||Industrials||Industrial automation software|
|Fanuc Corporation||6954||Industrials||Robot components|
|Krones AG||KRN||Industrials||Factory automation robots|
|KUKA||KU2||Industrials||Factory automation robots|
|AeroVironment||AVAV||Industrials||Unmanned aircraft (drones)|
|Yushin Precision Equipment||6482||Industrials||Take-out robots|
|Cognex||CGNX||Information Tech||Bionic eyes for robots|
|FARO Technologies||FARO||Information Tech||3D measurement|
|Keyence||6861||Information Tech||Industrial automation products|
|OMRON||6645||Information Tech||Industrial automation products|
|Yaskawa||6506||Information Tech||Welding/painting/handling robots|
|iRobot||IRBT||Consumer Disc.||Robot vacumn cleaners|
|Oceaneering International||OII||Energy||Underwater robots|
|Accuray Inc.||ARAY||Healthcare||Robotic radiosurgery|
|Cyberdyne Inc.||7779||Healthcare||Robotic suits|
|Intuitive Surgical||ISRG||Healthcare||Surgical robots|
While all of the above 20 companies are publicly traded, only 10 of these are traded within the USA. We can now take these 10 companies and create our own market cap weighted mini-ETF using the Motif Investing platform. Because of the large disparity in market cap sizes, we’ll say that any one position has to have a position of at least 5%. Our market cap weighted portfolio would then look like the following:
So what’s the advantage of investing in ROBO as opposed to creating your own mini-ETF like we did in the above example? Well firstly, the team behind the ROBO Robotics and Automation index will keep track of which companies come and go based on their business focus, acquisitions, IPOs, etc. You also receive exposure to global stocks and a much more diversified portfolio of 80 stocks as opposed to 10. For that privilege you’ll pay 95 basis points in fees. Alternatively, you can create your own smaller portfolio and have much more control over the entire process. Information about U.S. based stocks will be readily available as opposed to international stocks where you may have a difficult time researching due to language barriers.
You can open a Motif Investing account for free with no deposit required so you can create your own baskets of stocks and also take a look at our many Nanalyze "motifs" which cover various disruptive technology investing themes.