ETF brings investors' dreams of robotics closer
• Robotics ready to ring in industry changes
• Opportunities for growth abound with key players
• Early interest should pay off long-term
By Peter Garnry
Regular readers of my analyses will know that I'm very bullish on this century, and one of my biggest investment themes consists of robotics and automation coupled with artificial intelligence (AI). This industry is likely to transform our society in profound ways, and investors willing to bet long-term on this trend could have a bright future ahead of them.
Recently, my colleague Torben Kaaber, the CEO of our London office, showed me an article about robotics that featured some of the ways to invest in the industry. The piece mentioned a new exchange-traded fund (ETF) that tries to highlight exposure to robotics and automation technology. I believe this is the most important ETF launch in recent years for long-term investors. In many ways, it marks an important inflection point for the industry.
ROBO-STOX — most intriguing new ETF in 2013
The article mentions how, in November, NASDAQ welcomed the first-ever robotics stock-index that allowed a robot to ring the bell for the first time. About the same time, an ETF was launched named ROBO-STOX™ (ROBO:xnas) investing in around 77 stocks around the world. In a little over three months, the ETF has gathered USD 82 million in assets, which is quite impressive for an ETF launch, and is up five percent (see chart).
ROBO ETF share price since inception
Source: Saxo Bank
So what do you get if you invest in the ROBO ETF? The table below shows the 10 largest holdings. Keyence develops and makes sensors and measuring instruments used for factory automation. Intuitive Surgical designs surgical systems that amplify surgeons' capabilities while Cognex develops machine vision systems used to automate the manufacturing process. iRobot develops military robots and consumer robots for vacuum cleaning, and is one of the robotics companies I mentioned in October 2013 in my analysis on how to play robotics.
Source: Bloomberg, Saxo Bank
The table also shows that investors are paying twice the price for 12 months forward earnings before interest, taxes, depreciation and amortisation (EBITDA) compared to the current valuation of S&P 500. This is the price investors have to pay to own the future, and I know any canny investor may view it as expensive. However, given the potential growth opportunity this is a fair value.
Robotics and automation offers impressive opportunities
The ROBO ETF is tracking the new robotics index on NASDAQ, the performance of which goes back to 2002. In the index's 12-year-period the total return has been 23 percent annualised compared to 9.2 percent annualised for the S&P 500 Total Return Index (see chart). Of course, historical performance is no guarantee of future performance.
Source: Bloomberg,Saxo Bank
Interested investors in robotics technology should not pay much attention to history but look to the future instead. Do we believe robotics will be big? If yes, how likely is it that 2014 will be the year of robotics just as 1980 was the year of personal computers? Instead of the spotlight falling on Microsoft and Apple, you are betting on Keyence, Cognex, iRobot, KUKA and 3D Systems.