This brand new fund looks to zero in on the quickly growing—and increasingly ubiquitous—segment of robotics and automation by tracking the ROBO-STOX Global Robotics and Automation Index. This benchmark looks to invest in companies that have some aspect of their business that is derived from robotics-related and/or automation-related products or services, as determined by the index committee.
According to the fund prospectus, the index breaks this down into four general categories: industrial robots, service robots for government or corporate use, service robots for personal use, and ancillary businesses related to robotics and automation (see all the technology ETFs here).
Some examples of the types of products that fall into this robotics/automation theme include the following: unmanned vehicles, software that enables virtualized product design and implementation, three-dimensional printers, navigation systems, and medical robots or robotic instruments.
ROBO ETF in Focus
Investors should note that the product charges a somewhat steep 95 basis points a year in fees for this product, putting it at the top of the cost list for unleveraged funds. However, it clearly does provide a unique type of exposure, so there is definitely some merit to this high cost.
The product also has an interesting mix of ‘bellwether’ and ‘non-bellwether’ stocks. Bellwether companies are indicative of the performance of the segment, while non-bellwether firms have some aspect of their business in robotics, but don’t rely entirely on the space for their revenues.
ROBO looks to put 40% of its portfolio in the bellwethers, and 60% into the non-bellwethers, though each individual ‘bellwether’ stock will make up about 2.2% of the index, compared to just over 1% for the non-bellwether firms.
In total, the ETF will hold about 77 stocks in its basket, putting heavy weights into the U.S. (36.4%), Japan (24.7%), and then German and Taiwanese (6.5% each) companies. For sector exposure, some of the top segments include industrials (50%), technology (31.6%), and health care (9.5%).
Holdings have a definite skew towards mid and small cap stocks in this segment, as large caps make up just 20% of the total. This means that most of the names in the product are probably unknown to many investors, though some of the most famous initial holdings include components like 3D Systems (DDD) and iRobot (IRBT) (for bellwethers), and then Deere (DE) and Siemens AG for non-bellwethers.
How does it fit in a portfolio?
This ETF could be an ideal choice for those seeking a play on a high growth industry that has both proven itself, and has plenty of room left to run. The trend towards greater levels of automation is clear, so this could be a top choice if this continues.
However, the product is definitely more of a tactical play, and with its high cost, is unlikely to be a good pick for fee-focused investors. There are also a lot of names—in the ‘non-bellwether’ section—that might dull the return for the overall space, or could even not be that representative of the overall trends in the industry, though this is clearly the best option currently on the market.
Competition and Bottom Line
There aren’t any real competitors to ROBO, as the product is quite unique. There are, however, a couple of niche ETFs currently on the market that may attract a similar type of investor (though none follow the robotics segment in particular).
These include the Global X Social Media Index ETF (NASDAQ:SOCL) and the First Trust ISE CloudComputing Index Fund (NASDAQ:SKYY). Both of these funds have done very well in terms of performance in 2013, and have accumulated a decent level of assets to boot (also see 5 Clean Energy ETFs Leading the Sector’s Surge).
Plus, they have a targeted niche focus in a high growth industry, so investors may consider these instead of ROBO. This is particularly the case from an expense ratio perspective, as both funds cost at least 30 basis points less than the new Robotics ETF.
Given this, ROBO might have some difficulty in building up assets, at least initially. Though if the fund can deliver some outperformance, and if the robotics industry remains strong, investors could definitely embrace this novel ETF for a slice of their portfolios.