Robotics ETF Betting on Automation
One would be forgiven for casting a skeptical eye on investing in robotics companies, given the declines in the tech sector this year. The biggest technology exchange-traded fund, State Street Global Advisors’ Technology Select Sector SPDR Fund (XLE), has lost 27% so far in 2022.
Count Lauren Hein, Dallas-based ROBO Global’s head of advisor relations, among those who see the declines as the darkness before the dawn. Hein, who chatted with ETF.com’s Sumit Roy and Heather Bell last week, sees enormous growth for robotics and automation, its conjoined twin. Just look at the numbers, said Hein, who previously served as Pacer ETFs managing director and a regional director at Global X ETFs.
“By some industry estimates, [there are] about 20,000 warehouses in the U.S., and only 20% of them are using some level of automation,” she said, noting that automation can include everything from conveyor belts to first-generation robots scooting around the warehouse.
ROBO’s $1.1 billion ROBO Global Robotics and Automation Index ETF (ROBO) is the firm’s flagship fund. Its other products focus on artificial intelligence and innovation in healthcare.
A Broad Perspective
“We cover the whole ecosystem of automation,” Heins said. The fund tracks ROBO’s Global Robotics and Automation index, which includes 82 companies. They range from 3D printing to food and agriculture to manufacturing and industrial automation. The index also tracks components makers, she said.
Performance
ROBO has fallen more than 37% year to date, less than other funds such as the ARK Innovation ETF (ARKK), another fund focused on disruptive innovation, though with a broader scope.
Hein noted that ROBO’s portfolio is only 45% invested in information technology, while another 40% is in industrials and roughly 10% in health care. While the forward P/E of the fund stood at 36 last fall, Hein said it’s currently at around 20, and from a historical perspective, the fund’s nine-year track record has generally sat at around 22.
“When you pair that with the fact that we still see the companies in ROBO having about 35% higher than average sales growth estimated for the next 12 months, there's a lot of opportunity we think going forward,” Hein added.
She noted that supply chain disruption has been hard on automation companies, as it has made it hard to acquire various components and therefore deliver on orders.
However, the shortage in semiconductors looks as if it will be alleviated at least somewhat given the approval over the summer of a bill that allocates $52 billion to the domestic manufacture of semiconductors and the construction of new fabrication plants—somewhat ironically, because manufacturing semiconductors is such a delicate process, Hein adds that the factories will built by … robots.
Growth Rate
Hein noted that ROBO Global puts the forward growth rate for the entire automation ecosystem at 12%-13% and said it is still accelerating.
She pointed out that inflation and labor shortages are areas of concern in the economy and that automation addresses both of those, as it can fill in gaps left by worker shortages and smooth out supply chain logistics issues.
She cited how U.K.-based Ocado Group, one of the companies in ROBO’s portfolio, offers a “swarm” of robots that are controlled by artificial intelligence within a warehouse. The firm’s technology is already in use in the U.K., and through a deal with Kroger, will be used in warehouses in the U.S. in the future.
“Even by solving the problem of not having enough semiconductors, we are having to build factories that will be essentially robot-manufactured,” she said.
Contact Heather Bell at heather.bell@etf.com
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