Seventh birthday for ROBO Global finds it sitting pretty in growth sectors
ROBO Global Robotics & Automation ETF and index is about to celebrate its seventh birthday, having been the first index to track the global robotics and automation supply chain.
It might have been all about ESG in the thematic world in recent years, but the Covid crisis has seen increased reliance and adoption of emerging technologies at a faster rate. Being in the right place at the right time has enabled ROBO Global to achieve double the returns of the broader market.
The firm has USD2.8 billion tracking its indices and director of research, Jeremie Capron, explains that most of that is in the original ROBO Global product, while the firm has launched adjacent strategies around automation, including health care technology and innovation.
“It has grown nicely,” Capron says. “Primarily driven by the investment returns and in terms of fund flows it’s been relatively stable with regional differences.”
For Capron, this difficult year has had an effect on the index. “From my perspective as director of research, this has been a year where digitisation of the economy has been turbo-charged and many of the companies we track have been beneficiaries of that.”
He points to ecommerce which he says has essentially doubled this year. “The providers of automated solutions to warehouses and the supply chain in general have seen a surge in demand to accommodate the ecommerce boom, making rapid delivery possible.”
He also cites the working from home phenomenon, with anything that relates to enabling the work from home routine or the greater digitisation of businesses in response to social distancing requirements benefiting.
“The ROBO fund tries to cover the entire value chain of robotics and automation which means that on the computing side a lot of companies are seeing a surge in demand because they enable the digitisation of businesses.”
The rise of tele-health, enabling remote doctor/patient consultations have also aided the portfolios. At the end of the third quarter of 2020, ROBO Global was up over 14 per cent against global equities at 1 per cent and over the last five years the compounded average return is just under 18 per cent, or nearly double global equities.
“It’s seen consistent outperformance over the years and 2020 was the year with digitisation acceleration which is the environment in which the ROBO portfolio thrives.”
It’s not all been plain sailing with pockets of weakness, such as 3D printing which has suffered as it largely serves the automotive and aerospace markets, but is a small part of the portfolio at around 3 per cent.
“Going forward, there are two things to consider,” Capron says. “Is the adoption of AI-powered technology in automation a structural trend that will continue to 2021 and would we have a strong economic recovery in 2021 that will support the more industrial-related markets?”
A big portion of the index is in industrial or factory plants. The big question for Capron is when will Covid start to recede?
“What we hear is that in Asia, in China in particular, things are essentially back to normal and there has been some pent-up demand building during the crisis which has now led to significant growth year over year.
“If we can project that into Europe and the US, we will be in a similar situation and all is very promising but it depends on us controlling the virus,” Capron says. “Back in the summer time, our base case was that we would be past the trough of this recession with reopening dynamics to continue so recent developments in Europe are not what we had planned for a few months ago and we have to adjust for that.”
Investors in the ROBO Global range of products are a diverse mix, he says, with the European portfolio dominated by institutional investors, while in the US, the majority is retail, either direct or via wealth management platforms.
“What we have seen in recent years is that those large wealth management platforms have got much better organised in terms of how to capture the big trends,” Capron says. “Their thematic approach has been greatly improved, steering their clients towards more of a thematic approach than they did five years ago.”
He believes that identifying what are the best opportunities over the next decade is the firm’s main area of expertise. “Health care technology is very interesting because it represents about 12 per cent of the ROBO index and that is one of the most promising over the next 10 years.”
Specific developments will occur in remote monitoring through wearable devices for conditions like diabetes and cardiac disease. “This will enable a new approach in the early detection of diseases,” Capron says. “Wealth managers have identified this as well and we are trying to help investors capture the returns generated by that trend.”
Capron also comments that this year has seen an impressive shift into ESG funds, and details the firm’s ESG policy that it developed in response to demand from European investors, and which is now being adopted by US investors as well.
“Robotics and automation inevitably raise some social concerns,” he explains. “As we automate, some fear that we displace significant proportions of the workplace but what we have found is that mostly automation has been creating high value jobs and that the impact has been rather positive. More generally speaking, those technologies that are ESG positive are all about productivity and efficiency so lower the use of natural resources.”