With the recent performance of equity markets amidst a rising interest rate environment, investors have begun to question whether thematic ETFs still have a place in portfolios. There is often an association made between thematics, such as robotics, automation and AI, with technology and growth stocks but this can be a flawed assumption.
Technology stocks have been a big driver of the recent performance of global equity indices, after five years we may now be seeing this trend start to taper. Divergence since the start of 2022 has resulted in the worst underperformance for growth at the start of a year since 1995.
Whilst some investors may believe this rotation is long term and long overdue, the need for diversification has never been more important. In fact, this rotation could be positive for cyclical companies, many of which are featured in ROBO and have been shunned in recent years. The ETFS ROBO Global Robotics and Automation ETF aims to provide a high-quality bias and significant diversification across growth and cyclical areas, such as factory automation. ROBO is not a concentrated bet on a handful of high-flying tech stocks but a selection of best in class robotics, automation and AI stocks from around the world, including industrials, warehouse and logistics automation and healthcare. As a result, when many high valuation tech stocks are off 30-50% from their all-time highs, ROBO is only off ~5%.
ROBO Global, the team behind the index that the ROBO ETF tracks, recently put together their key trends for 2022, some of which are very much supported by the current rotation we are seeing. See a summary of their 2022 trends below and the full report is available here.
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There is an arms race to automate
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2021 turned out to be a boom year for robotics and automation with record high installs and demand exceeding supply as we saw a strong economic recovery and supply chain stress. 2022 looks even stronger for demand as well, with more stress expected on supply chains. Couple this with labor shortages and shifting consumer habits, automation could be the answer.
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Robots are coming to save the supply chain
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It is estimated that logistics and warehouse automation was a $70bn market in 2021 and should grow to $105bn by 2025
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Daifuku, Zebra Technologies, GXO Logistcs, Autostore, Kardex, Manhattan Associates and KION, all holdings currently in the ROBO ETF are major beneficiaries
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A factory Automation Super Cycle is upon us
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The factory automation market specifically should continue to surge in 2022 driven by efforts to digitize production systems, labor shortages and reshoring plans for US companies. Collaborative robots (cobots) are a major focus and their ability to work with humans a major factor.
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Cobots are less than 5% of robotics market ($1.5bn today) but will grow 35% a year to 2028 ($35bn market share).
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Companies such as Teradyne, Rockwell Automation, Harmonic Drive, Nabtesco, SMC will all benefit
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Autonomous vehicles will take to the road, sky and sea
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While people were skeptical as to the viability of autonomous vehicles, ROBO Global can see 100% autonomous transport by 2050
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This requires sensors, AI and multiple communication technologies like 5G to make this happen
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Tesla, Luminar, NVIDIA, Qualcomm and Ambarella offer great exposure to this sector
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Metaverse meets real world
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The metaverse will have far reaching consequences on the design and manufacture of new products and technologies. Digital twins tech helps create fully virtualized products and simulations leading to superior products designed and manufactured faster
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Autodesk, Dassault and PTC and industry leaders in this space
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To find out more about the trends of 2022 from ROBO Global click.
