A number of asset managers are just beginning to acquaint themselves with the AI and automation industries, but one indexing firm has been deeply invested in the burgeoning field.
ROBO Global touts itself as the only index that tracks the robotics industry in depth. Like other providers of late, the firm managed to claim a memorable ticker for its offering: ROBO.
But building an index of value to advisors takes more than just a catchy name, said Travis Briggs, ROBO Global's chief executive. The firm invested in top talent from the field and delved into it with great detail, developing an index with 12 subsectors and 83 names.
"We think it's imperative to be known as the knowledge experts in robotics automation," Briggs said.
One issue that the firm has dealt with, Briggs said, are clients wary about investing in companies that might never develop a product beyond the R&D stage.
"The question does come up, if these are just fly-by-night companies," he acknowledges. "Anyone who would spend some time with the 83 names would realize that we've got companies including Schneider Electric, Siemens and Northrop Grumman. One of the real benefits with this index is it is made up of stable companies that are really in the right place at the right time."
Briggs spoke with Money Management Executive about how the index was developed and how it educates advisors who may be wary about what still is considered an experimental field.
An edited transcript of the conversation follows.
What was the idea behind ROBO?
We started with the idea that robotics and automation are going to be a great investment opportunity for a multi-decade type time horizon.
Four years ago it was a very interesting concept, but at the time there were few investment opportunities and not one mutual fund really addressing the topic.
Critically, there was no way to define the space; you could get your head around robotics and automation, but there wasn't a set classification system or a code you could just type in and say, "Okay, show me all the robotics companies."
So from Day One, we built an organization around understanding, following and building indexes around robotics and automation. And, we put a team together focusing solely on that space.
One of the first advisory board members was Henrik Christensen, who was department chairman of robotics at Georgia Tech at the time. He is now department chairman of robotics at UC San Diego.
Another gentleman, Raffaello D'Andrea, is professor of robotics at ETH Zurich and also co-founder of Kiva Systems, now Amazon Robotics. If you've ever seen the little orange bots running around Amazon warehouses, that was the firm he co-founded.
How have you seen the space evolve since you joined the firm in 2014?
In such a short period of time, it's evolved quite dramatically. When we built the industry classification system, we decided it needed to be diversified because it is a very disruptive space. There will be lots of winners and losers and even today, I think it is very hard to navigate those winners and losers. You want to provide an exposure to investors that will capture the growth we know is embedded in this opportunity, but you also want to give them as smooth a ride as possible and diversification helps.
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What surprises a lot of investors are the subsectors within the industry classification. There are 12 subsectors, with one primary bucket which is technology and another which is applications.
The technology bucket holds classifications including sensors, processing, computing and AI. If you view these initial products you wouldn't even recognize how they contribute to robotics, but these are critical to the ultimate success of the space. The applications bucket has all the end uses: traditional industry manufacturing, but also health care, logistics, automation, consumer products, agriculture, energy, as well as drones and 3D printing.
Artificial intelligence, which we call RAI for shorthand, has transitioned from a narrow niche into a foundational technology in every industry. You name an industry and I can give you an example of where RAI is integrating, in multiple applications.
What's been a surprise since starting the index?
The number one performing subsector over the last four years since the launch of the index is materials handling logistics automation. If you would have asked me it probably would have been one of the last on the list, it's probably the least sexy subsector there. AI or 3D printing is more out there, but with the benefit of hindsight and looking over the four years, it's really fascinating to see that.
“To know where the puck’s going, we don’t need to study what’s happened in the past, we need a more broader market overview; this is a sector that we see coming up.”
The index is diversified in names, there are 83. Generally speaking, from a thematic type investment that's a fairly large number of names. It's diversified from a geography perspective - 60% international, 40% U.S. - and it's diversified from a market cap perspective. But one really key diversification that we have come to really appreciate is the different drivers within those subsectors.
So let me give you an example. Logistics automation is automating fulfillment sectors and warehouses. If you think about what's driving that space, it's the ecommerce growth curve.
The more people buy online, the more distribution centers you have and the more fulfillment centers are needed to hold those goods and ultimately get them to the clients. All of us intuitively know we're spending more online today than we were four years ago and we will spend more every year online.
Some ETF firms are known for giving catchy names to their tickers. Was there an immediate need or thought process behind getting the ROBO ticker?
The ticker is actually important in this business, and for us it was an important ticker to get. It was recognizable and it was available, but the timetable for the index wasn't pushed up to try to secure that ticker. It just all came together.
Now, investors have embraced the premise that no industry is immune to robotics, to RAI. I envision a future where the integration of RAI and the continued penetration of RAI will bring as much opportunity as it does change. Technology has been displacing jobs ever since the steam engine was created. There's a lot of noise out there suggesting that this time is different and there will be massive job loss. I really don't see it. I don't think the evidence is there and I think we will see a future where there is going to be enormous collaboration between humans and machines.
How do you differentiate between firms that are worthy of investment? Assuming many firms out there are developing experimental technology that may never make it to market.
I would definitely agree this space is filled with a very vibrant private market. The venture capital and the private equity spending have been increasing rapidly over the last four years. What is different about RAI and the index investment opportunity versus the Internet in the early days is you can look through these 83 companies, and while very few are owned by investors right now with little overlap to the S&P 500, these are companies with real business models that have been operating for quite some time.
These funds have the smallest beta scores, either positive or negative, indicating the least variability from market returns.
The question does come up: Are these just fly-by-night companies? And anyone that would spend some time with the 83 names would realize that we've got companies including Schneider Electric, Siemens and Northrop Grumman. One of the real benefits with this index is it is made up of stable companies that are really in the right place at the right time.
We're continually trying to educate those that are interested in the space. So the content that we put out with the website, we try to be as transparent as we can. We explain how we build the index, what we think is important and point out interesting developments. We just put out a white paper on logistics automation. We tell investors, if you are really interested in the space, use us to learn more about it.
How do you market the index to clients?
We talk about two critical differentiators. RAI is not a niche, RAI is a technology that is being driven in every industry in multiple ways. Once investors get their head around the magnitude of the embedded growth opportunity of RAI, then they want to know how to approach it and who is the team that's doing it. So our focus is on two things: putting the best people together that can understand and navigate this disruptive space, and providing a diversified exposure and a broad exposure to capture the entire growth of RAI.
We have a proprietary database of 275 publicly-traded companies. Those are companies we monitor. Companies come in, sometimes companies come out, but it is fairly static. From there, it's not so much what names are in it today and why are they there, it's where is the puck going. To know where the puck's going, we don't need to study what's happened in the past, we need a more broader market overview; this is a sector that we see coming up, or this is what we see in the space, this is real, this isn't real, that type of thing.
So how we've designed our firm is we think it's imperative to be known as the knowledge experts, if you will, in robotics automation. We're providing an investment opportunity that believes RAI is in the first inning of a long game.
We can have that discussion that yes, you in the right space, here's how to capture it in the best way. We talk about the importance of diversification, the importance of continually monitoring companies at the quarterly rebalancing. And finally, who's involved and how do we know that you know where the company is going.
Given there is that potential for proliferation and sophistication even within the different segments of robotics, will there be a need to break up or create new funds, rather than a one-size-fits-all ETF?
One of the first things I said when we got together is we're not a traditional index provider. We're trying to build a firm with the expertise in bringing innovation to investors. If we looked at it four years ago we'd probably say, "That's a pretty narrow goal." But now as the technology advances, we view RAI as a really deep vein that we can continue to mine for years to come. So, yes, the ROBO index's primary goal right now is to capture the entire value chain of RAI. And that's why we start with everything from the sensors all the way to the industrial manufacturing robot. As the space grows and matures, there's multiple ways you can look at this. You can diversify it from a market cap perspective or from a geography perspective.
There is no doubt this is evolving. Take for example the term artificial intelligence, which I think is a misnomer. I'd call it augmented intelligence at this point or intelligence amplification. It was off the radar screen when we launched this. But it's just moved to a point where it's really integrated in robotics and automation in so many different ways that they almost have become inseparable. Interestingly, the reason that has happened is not because of Moore's Law, that processing powers are getting cheaper and better, or the algorithms are getting better. The reality is that the amount of data that we are now accumulating on a day-to-day basis dwarfs anything that we were doing five years ago. And so AI has now become much more powerful because it has more data to consume.
