Speaking at Legal & General Investment Managers (LGIM) investment conference recently, Richard Lightbound, European CEO of ROBO Global, laid out his vision for the growth of robotics in the equities space in the coming years.
ROBO Global is an index of 88 stocks in the robotics industry. Mr Lightbound was keen to point out that none of the FANG stocks (Facebook, Amazon, Netflix, Google) are included as they do not derive enough of their revenue purely from robotics.
He also said while it took 10 years for 10 percent of the S&P 500 to be dominated by internet related companies, he foresees it will take much less time for robotics to take an even greater share of the world's largest equities market.
When it comes to robotics, Lightbound's index contains stocks from various industries. For instance in healthcare, which he described as a 'particular area of interest', DNA sequencing has become an important sub-sector.
In all the index covers 12 sectors ranging from industrial production to household appliances like smart vacuum cleaners, which learn the layout of individual houses. The fact it does cover cyclical areas like production means the index is not immune to an economic downturn, although Mr Lightbound said that the index is achieving annualised growth of 19 percent.
The index is not market cap weighted, rather companies that are 'pure play' robotics are given a larger weighting in the index. It also draws its stocks from an internal database based on rules and quality figures. ROBO Global estimates that by 2035 the entire robotics industry will be worth over $35 trillion.
Mr Lightbound has seen growth in healthcare, logistics and automation which has been aided by e-commerce firms looking to move products as fast as possible. There is also little overlap between the index and the broader S&P, with ROBO Global having a preference for mid cap firms therefore lacking the megacaps that dominate the market cap weighted S&P.
He also discussed the average forward price-to-earnings of the index's constituents which may surprise, on average they usually trade on 21-times p/e but last year closed on just 17-times. For what is undoubtedly a growth sector, this seems very reasonable indeed.
LGIM through their takeover of ETF Securities now has one of the main ETFs that track ROBO Global with around $1 billion in assets. If Mr Lightbound's growth estimates are accurate, it looks like the index and the growing number of products tracking it are in line for a large increase in assets.
Given that ROBO Global launched with 74 stocks and is now at 88, through a mixture of M&A and new entrants into the market, the index may indeed grow. However, with its tight controls over which stocks make the grade, it will continue to offer investors exposure to the growing world of robotics and AI.
