Robotics and automation stocks defy the tech sell-off
After an impressive rise in 2020, tech stocks have been hit by selling pressure so far this year. One tech sector that has defied the recent trend is robotics and automation.
The ETFS ROBO Global Robotics and Automation ETF (ROBO) is up more than 4.9 per cent in the first five months of the year, after rising 31.5 per cent in the 2020 calendar year.
More importantly, the investment case for robotics, automation and artificial intelligence is much more diverse than most investors realise and is still in the early stages of what will prove to be a long-term growth trend.
The traditional face of robotics tends to be associated with systems like Boston Dynamics’ Atlas the Robot or Hanson Robotics’ Sophia, the world’s first robot citizen, but there is more to the industry than humanoid robots.
Robotics is no longer a niche theme but rather a foundational technology that will soon be applied to virtually all industries and markets.
Leading the charge on integrating robotics and automation into existing processes have been companies working in the areas of supply chain logistics such as Ocado (LON: OCDO) and warehouse automation such as ATS Automation (TO: ATA) where machines have replaced humans to deliver significantly more efficient and safer results for businesses.
The investment opportunity here is significant and if captured correctly the growth prospects from companies within the industry is huge. We believe it is important for investors to ensure their portfolios have early exposure to this theme.
Some recent developments in the sector include advances in sensing combined with precision technology that are opening up the field of robotic surgery. Varian Medical Systems (NYSE: VAR) uses artificial intelligence in the treatment of cancer and other medical treatments.
The technology infrastructure system, 5G wireless, is leading to a number of “smart city” developments. In agriculture and food production, facial recognition systems are being tailored to analyse plants for their level of hydration and their need for fertiliser and pesticides.
There is a vast supply chain supporting this industry as well. For example, chip processors and computer vision are key to ongoing improvements in robotic technology and companies that specialise in this. Companies like Nvidia (NASDAQ: NVDA) and Ambarella (NASDAQ: AMBA), are likely to benefit from continued growth of this industry, even though it is not their sole source of revenue.
What makes these developments important from an investor point of view is that robotics, automation and artificial intelligence are being used across a wider range of industry sectors, offering a greater diversity of investment cases.
RAAI is one of the megatrends of our time and is becoming increasingly integrated and essential to our lives. Supported by increasingly sophisticated technology, this industry is expected to see significant growth in coming years.
Interestingly, the COVID-19 pandemic has accelerated some of the existing RAAI trends, such as warehousing automation, and increased investment in this space.
RAAI is not highly represented in the Australian market, so Australian investors may find it valuable as an international growth exposure in their portfolios.
As a unique industry falling across sectors, investors may find a managed investment, be it an actively managed fund or a passive option like an ETF, can assist in alleviating some of these challenges – managing the research and analysis to identify relevant companies, providing diversification across companies to reduce company specific risks and providing on-going portfolio maintenance.
Kanish Chugh is Head of Distribution at ETF Securities, which provides access to the RAAI sector through the ETFS ROBO Global Robotics and Automation ETF (ASX: ROBO).
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