investor interest Artificial intelligence (AI) is on the rise this year.Just as formerly hot technology segments such as social media and e-commerce have lost their luster for investors in a tougher economic environment, so too have consumer AI applications. Chat GPT came along and rekindled investor interest in the tech sector.
ChatGPT’s creator, the private OpenAI investment, is off-limits to the average investor. However, investors may still be exposed to the rise of AI. One of the ETFs that investors can use to capitalize on this growth is his ROBO Global Robotics & Automation Index ETF (NYSEARCA: ROBO).
What is a Robo ETF?
ROBO is an ETF of Robo Global, an index, advisory and research firm. Robo Global focuses on areas such as artificial intelligence, robotics and medical technology. This ETF tracks the company’s ROBO Global Robotics & Automation Index. We aim to provide investors with returns commensurate with this index, net of fees and expenses.
The aptly named ROBO is no newcomer to AI. This ETF was launched in 2013 and according to Robo Global, it was the first robotics and AI ETF. Since ROBO’s inception, assets under management (AUM) have grown to approximately $1.3 billion.
Beyond the hype
Beyond the hype, AI and robotics will be a lucrative market for the winners. Robo Global predicts that the AI market for applications and computing will grow from just $70 billion in 2020 to $410 billion by 2025. .
When many people think of artificial intelligence, the first thing that comes to mind is ChatGPT. But ROBO casts a broad net well beyond this kind of consumer artificial intelligence.
Rather than simply investing in big tech stocks such as Alphabet and Microsoft, ROBO aims to provide broad exposure to investors in AI, automation and robotics across industries.
Robo Global President and CIO Bill Studebaker said the company sees three key growth drivers for the businesses Robo Global invests in. in a knowledge-based industry. ”
Automation of high-touch service businesses and the use of AI in knowledge-based industries will continue to grow in the near future as companies at different ends of the economic spectrum struggle to attract and retain qualified workers for a variety of reasons. It can be a particularly powerful theme. ETF holdings fit most of these themes.
ROBO Top Holdings
lots of Top holdings of ROBO The theme is further automation and robotization of manufacturing. Leading companies such as Harmonic Drive Systems and IPG Photonics are working to automate the industry.
Harmonic Drive Systems’ sensors, drivers, controllers and other products are used in industrial robots and semiconductor manufacturing equipment. IPG Photonics manufactures high-end lasers used in manufacturing and materials processing.
Another holding, Zebra Technologies, makes barcode scanners, RFID readers, and more. These tools help businesses streamline manufacturing and distribution and enable real-time tracking of inventory locations. Other major companies such as Rockwell Automation and Teradyne are also working on the subject.
The top 10 holdings ServiceNow makes workflow automation software and fits the idea of increasing the use of AI in knowledge-based businesses. As businesses struggle to find qualified workers and are forced to keep costs down, ServiceNow’s products should remain attractive to businesses.
Additional ROBO holdings
The ETF also holds positions in a handful of semiconductor companies. Semiconductors are essential for providing the computing power that AI solutions require. Nvidia’s chips are important to many companies within the AI end market. The semiconductor giant is teaming up with Microsoft to build a “supercomputer” to manage AI workloads. Nvidia also builds its own large-scale language models that can be used to train chatbots such as ChatGPT.
Other holdings of note include stocks such as Intuitive Surgical and Deere. Intuitive Surgical is an $84 billion company that manufactures cutting-edge robotic surgical systems. These machines allow surgeons to perform minimally invasive surgery with greater precision.
Plus, powerful farm machinery like Deere might not be the first name that comes to mind when you think of AI. Nevertheless, Deere’s products make extensive use of artificial intelligence to improve farmers’ productivity. Deere makes drones that spray crops and scan for weeds, autonomous and semi-autonomous tractors, and autonomous sprayers.
In short, the average price/earnings multiple across ROBO holdings is 23x (as of December 31, 2022). This is more expensive than the average multiple, S&P 500, it’s not terribly expensive. ROBO invests in profitable companies that provide tangible solutions in the areas of AI and automation.
Well-diversified ETF
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The ROBO Global Robotics & Automation ETF is highly diversified. The fund holds 81 positions, with the top 10 positions accounting for only 17.8% of its assets. The leading company, Harmonic Drive Systems, has only 2.3% ownership. ROBO takes a broad approach towards investing in artificial intelligence, investing in different parts of his chain of robotics and automation supply across 14 countries.
Performance and expense ratio
ROBO fell 33% last year as technology and growth stocks were sold. But as investor interest in AI soars in his 2023, ROBO is recovering with a staggering 15.6% year-to-date growth.
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The fund has a 3-year return of 25.4% and a 5-year return of 27.1%. Additionally, ROBO’s overall Lipper Rating (the fund’s rating system) is 3 out of 5.
One thing investors should be aware of is that ROBO has a relatively high expense ratio of 0.95%.
Tips for investors
There are two drawbacks that investors should be aware of when evaluating this ETF. His 3-year and his 5-year performance of ROBO has lagged the overall market and its expense ratio is relatively high. However, ROBO is off to a strong start this year and appears well-positioned to capture the turnaround from the growing adoption of artificial intelligence.
The fund is notable for going well beyond the usual big-cap tech contenders when investors look for names that can tap into the rise of AI and robotics. ROBO’s balanced holding group allows investors to tap into the growth of AI and automation across many industries and end markets. The fund holds a good number of lesser-known names that could prove to be diamonds in the rough.
For investors interested in the growing adoption of artificial intelligence and robotics, ROBO looks like a smart ETF to capitalize on this long-term trend.