Almost a decade since the 2008 crisis and following an extended period of low interest rates, investors are actively looking for new ways to create wealth. Alternative sources of return such as via thematic investing, have the potential to unlock these new pockets of opportunity.
Thematic investing is about capitalising on future trends and an investor who is forward-looking and happy to take on a long-term investment view will likely be a beneficiary of the trend over time. "The popularity of thematic investing via ETFs has risen in recent years," says Howie Li (pictured), Executive Director and Co-Head of Canvas at ETF Securities.
On the back of this growing interest, the ROBO Global Robotics and Automation GO UCITS ETF has seen its assets triple this year to over USD140 million. The ETF was launched back in October 2014 in cooperation with ROBO Global, a recognised leader in robotics and automation research and indexing, with the aim to create the first robotics and automation UCITS ETF in Europe.
Li says: "At the time we were seeking to identify a theme that had long-term growth prospects and robotics has continued to be the hottest theme during the last two years."
It is estimated that by 2025, the robotics and automation sector will be worth USD1.2 trillion. At the same time, worldwide annual supply of industrial robots is forecast to grow at a year-on-year average of 15 per cent between 2016 and 2018, something which Li says makes the sector an obvious growth engine amidst an uncertain global economy.
Understanding the robotics and automation ecosystem, defining the high-growth subsectors and identifying key players comes through the team of experts at ROBO Global. This approach to index construction is both bottom-up and top-down and ensures exposure to the whole robotics and automation ecosystem diversified across market cap and geographies. "The ROBO Global team monitors and researches a universe of 1,000+ private and public companies operating in this space." Their advisory board includes Raffaello D'Andrea, whose inventions lie behind the Amazon Robotics infrastructure.
If imitation is the sincerest form of flattery, ETF Securities has noticed that other products using robotics and automation as an underlying theme are beginning to arrive on the scene.
Li cautions that these products have approaches that may vary quite widely. "There are pros and cons from our perspective," he says. "The pros include the fact that robotics has been recognised as a clear theme where investors can benefit; increased focus around robotics reinforces our view that robotic investing is here to stay. But it also becomes especially important for investors to understand what they are buying."
"Investors need to lift the lid and see what the product actually holds. How is the exposure being attained? Are there holdings which overlap with an investor's existing allocations? We focus on small and mid-caps for high-growth diversification, meaning a low likelihood of overlap with common equity large-cap portfolios."
The ETF Securities and ROBO Global approach is rules-based and ensures exposure to the entire robotics and automation value-chain. "It is too early to pick the winners in this space. Instead, the ROBO Global index maximises exposure to the megatrend by overweighting companies as bellwether stocks where robotics and automation is at the heart of their business", adds Li.
The increased popularity of thematic investing and specialist input from the ROBO Global team are collectively set to continue to drive the growth in the ROBO Global Robotics and Automation GO UCITS ETF. It also helps that there has been a recent fee reduction and switch to physical replication in this ETF.