How to Invest in Robots and Robotics Stocks
The hype surrounding the robotics industry continues to grow as we see more and more interest from retail investors in robots and robotics stocks. Robots are already changing the global labor market and, as time goes by, will have a direct effect on our livelihoods. Besides the fact that we are happy to see household helpers taking over our apartment and Granny being able to walk easily again, our main question is how can we get a piece of the action as retail investors? Maybe if we make some money by investing in robot stocks we’ll have something to live on when all the jobs are gone to the “fourth industrial revolution“. Basically there are 4 ways to invest in robots and robotics for retail investors:
- Mutual Funds
- Stock Picking
- Create a Motif
We’ve already covered the Robo Global Robotics & Automation Index ETF (NASDAQ:ROBO) in a previous article, which is a well-diversified listed fund holding 85 companies, the largest company weight being below 2%. This also means not all holdings are pure play robotics stocks – the pure play part (so-called bellwether stocks) is about 40% of the fund, and has approximately double the weight of non-bellwether stocks. The fund has a 3-year track record and boasts a rolling 1-year performance of +34% (vs. Nasdaq return of +24%) and a return of +27% since it was created (vs. Nasdaq +48% return). Here a look at their not-so-impressive performance so far (ROBO in blue, Nasdaq in red):
Robo Global charges you about 1% a year (95 bps) for managing the ETF so it’s not cheap. In terms of exposure, ROBO is exposed 45% to the US and 25% to Japan, and mainly invests in Industrials with 51.8% weight in Machinery, Equipment and Components.
A direct competitor to ROBO launched on Nasdaq in September 2016: the Global X Robotics & Artificial Intelligence Thematic ETF (NASDAQ:BOTZ). With 28 holdings, BOTZ is more concentrated than ROBO, and the largest constituent weight is 8.45%. BOTZ constituents overlap significantly with ROBO, with only four stocks not held by ROBO. Since inception BOTZ has returned +13.2% and charges a management fee of 68 bps. BOTZ has a different country breakdown where Japan takes first place with 48% exposure and the U.S. is second with 25%. Again, we see a heavy concentration in Industrials at +70%.
iShares, the ETF platform of the world’s largest asset manager, Blackrock also launched a robotics themed ETF in September 2016. The iShares Automation & Robotics UCITS ETF (LSE:RBOT) is another diversified fund with 92 holdings and a more balanced geographical exposure (US is 34%, Japan is 27%) than the other two. RBOT is heavily investing in Information Technology (69.6%) with companies like STMicroelectronics, NVidia and Microsemi Corp. Return is +16% since inception, and more of this return is made available to the investor with the lowest expense ratio of the three at 40 bps. The ETF is currently registered to be sold in Western Europe, but not in the US.
The three above ETFs all offer a different take on the global robotics opportunity in terms of concentration, geographical focus and industry weights.
If you don’t necessarily want to stick to listed ETFs, the CS (Lux) Global Robotics Equity Fund is a mutual fund offering from Credit Suisse for retail investors sold in Western Europe and Singapore. Launched in June 2016, the fund description claims they are only investing in companies which have at least 50% of their exposure attributable to robotics, automation or AI, which is good news for pure-play investors. The composition does lack most of the large conglomerates we’ve seen in the other ETFs with largest holdings being Intuitive Surgical, Thermo Fisher Scientific and Tecan Group (though the latter two are medical/biotech companies). Its country composition is US-heavy with 50%+, and investments are balanced almost 1/3rd each between activities in productivity improvement, performing dangerous tasks and improving quality of life. Performance since inception is +12% similar to the above mentioned ETFs. On the other hand, it has been discussed and proven that in over 80% of cases, active managers cannot consistently outperform the market, especially in the equities space. Would you pay the 160 bps management fee of the fund for that? Fcuk no.
As all of these funds hold a large number of stocks, it is inevitable that with certain holdings, exposure to robotics is derivative at best. If you’re looking for pure-play investments, you can still pick stocks yourself. While we’re constantly hunting for new investment opportunities in the field to share with you, here are the robotics stocks we’ve covered so far:
- Mazor Robotics (NASDAQ:MZOR) was founded in 2000 in Israel and has a flagship spinal surgery system called the Renaissance which has been used to perform over 16,000 procedures worldwide, many of which would not have been possible without their technology. MZOR has been trading on the Tel Aviv stock exchange since 2007 and in 2013 began trading on NASDAQ. Their market cap is currently $532 million, and their 1-year performance was +136%.
- Intuitive Surgical (NASDAQ:ISRG) raised $46 million in an initial public offering in 2000 and in the same year, became the first robotic surgical system cleared by the FDA for general laparoscopic surgery. Since then, their da Vinci robot has been assisting surgeons in more than 3 million minimally invasive procedures in various surgical specialties. Intuitive’s market cap is $28.71 billion, and it boasts a 1-year return of +32%.
- iRobot (NASDAQ:IRBT) is a consumer robotics company that largely sells robotic vacuums, and has small divisions serving the Mobile Robotic Telepresence and Defense and Security markets. Sales have been rather good lately, and IRBT’s share price has gone up +84% over the past year, which brings their current market cap to $1.58 billion.
- Ekso Bionics (NASDAQ:EKSO) is manufacturing rehabilitation exoskeletons for stroke and spinal cord injury patients. They’re targeting an estimated 50,000 rehabilitation clinics globally with their EksoGT suit, which already has FDA clearance and is priced above $100,000. EKSO’s share price spiked in April 2016 alongside the FDA clearance and has stabilized since then giving EKSO a market cap of $72 million and a rolling annual return of +264.8%.
- ReWalk Robotics (NASDAQ:RWLK) started in Israel and IPO’ed on Nasdaq in 2014. They are another medical exoskeleton company helping in the rehabilitation of wheelchair-bound individuals serving patients and clinics as well. They are micro cap with $34.75 million in market cap and had a rough year losing -79.9%.
- Cyberdyne (TYO:7779) spun out of the University of Tsukuba and is listed in Japan. Their Hybrid Assistive Limb (HAL) system is advertised as a helpful tool in medicine, living and labor support. It is priced attractively at $14-19,000 making it much cheaper than competition and is also available for rent. Cyberdyne’s market cap is $2 billion and the stock lost -10.83% last year. Potential investors should be aware of a report issued last year by notorious short seller Citron that predicted Cyberdyne stock will lose 85% of its value.
- Rex Bionics (LON:RXB), the New Zealand micro cap of 3 years is also a medical player, with a target market of wheel chair users with a spinal cord injury, who number 500,000 in the US and EU. They are running a multitude of clinical trials to support their product, which is priced similarly than the competition at $112,000. Their market cap is $4 million and their shares suffered last year with -73.75% return and low trading volumes.
One thing to note here is that you could make an argument for autonomous cars and drones being included in “robotics” but we’re keeping these two themes separate from this article.
Stock picking can get you closer to pure exposure, but it is also a risky endeavor to put all your eggs in one basket – you can see the cycles of volatility on the performance of the above robot stocks. There is an in-between solution for investors offered by Motif Investing. Motif allows retail clients to customize a basket of US stocks (these are called motifs) and trade this basket at $9.95 a trade (it’s like your own mini-ETF). We set up our own motif with the below stocks that are all U.S. bellweather robotics stocks found in the ROBO ETF:
Motif Investing also serves as a mechanism to track certain investing themes, like robotics. So far, our “Nanalyze Robot Stocks” motif has returned a respectable +37.1% over the past year as seen below:
So there you have 4 ways to invest in robots and robotics stocks. The above vehicles and the number of recent launches show the increasing demand for this kind of investment is being recognized by the industry. All the successful startup funding rounds and the appetite of retail investors make us hopeful to see additional IPOs and product launches coming our way as well. Stay tuned.
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