Many observers believe robotics, automation, and artificial intelligence (RAAI) is one of the most compelling investment opportunities of the 21st century, with RAAI technologies already disrupting nearly every industry in every geography. Still in its infancy, this multi-decade transition to a world in which automation and technology are applied to all industries and markets is positioned to provide a unique opportunity for today’s investor.
This investment opportunity is being driven by many long-term factors, including:
- Improving technology: We continue to see rapid advances and declining cost curves in everything from machine vision to voice recognition and machine learning. These technologies are enablers that increase the scope of where robotics and automation can be deployed.
- Wider deployment: Robotics and automation have applications far beyond manufacturing. They bring greater efficiency to a wide range of use cases, including automated distribution centres, surgical robots and diagnostics tools, drones, and autonomous vehicles.
- Macro and social challenges: As our world evolves, robotics and automation is ready to help feed and care for the global population. Most recently, automation is needed to assist with social distancing.
While every aspect of the global economy has been challenged by the Covid-19 pandemic and economic downturn, these recent developments have validated and accelerated the investment case for robotics, automation and artificial intelligence
Firstly, technology has been essential to social distancing, from logistics to remote healthcare. In addition, robotics and automation create safer and more efficient workplaces from factories to hospitals to offices, which has been crucial to companies during a downturn. Third, the investment theme also has very little exposure to the sectors worst affected by the crisis - energy, travel, hospitality, and traditional brick-and-mortar retail.
Coming out of this period of crisis, there are some particularly strong opportunities for growth in the areas of logistics automation, healthcare technologies and artificial intelligence (AI), all of which are sub-sectors in our robotics and automation strategy.
Logistics automation is a sub-sector that will benefit from the enormous strain currently put on e-commerce, with demand for online retail likely to accelerate even further. Companies such as Ocado are transforming online grocery shopping around the world's most advanced end-to-end fulfilment and logistics platform. Innovators such as Zebra Technologies are developing the solutions that enable businesses to intelligently connect people, assets and data.
Healthcare automation is another sub-sector that has demonstrated its worth to society during the pandemic, and we believe it will continue to be in high demand once the pandemic recedes. During a time when other industries have been grounded, on-demand healthcare has taken off into the mainstream. A recent survey conducted by ROBO Global identified that the coronavirus pandemic has tripled the number of active users in the telemedicine industry; 93% of these new users said that they would use telemedicine again. With further software investment post-pandemic, behavioural health, chronic care and support to the elderly population are all areas where healthcare automation can offer far-reaching and long-lasting benefits.
Finally, the computing, processing and AI sub-sector has enabled many aspects of the remote working facilities we depend upon both today and will do in the future. Companies such as Blue Prism, developer of robotic process automation software that provides businesses with a more agile virtual workforce, and Nvidia, inventor of the GPU which creates interactive graphics on a huge range of computer devices, are leading the way.
The challenge for investors is how best to invest in a theme that spans a highly unstructured universe of companies where rapid technological advances often change the landscape almost overnight.
The majority of robotics and automation investment strategies are driven by traditional sector classifications in their security selection, which makes them dependent on backwards-looking data or on classification systems that are not suited for rapidly evolving themes. We believe our investment strategy is the only one that combines active research through industry experts to take a forward-looking view of this secular growth market, offering pure-play exposure to best-in-class robotics and automation companies.
It is our view that a systematic and rules-based index approach can complement this active research. We have entered an inflection point with robotics and AI and the rate of change is extraordinary. It is difficult to predict which companies will excel over the long term and which will fall prey to the increasing competition. By investing in the building blocks of innovation, investors can tap into the greater potential for long-term growth in a way that diversifies the risk of predicting which players will rise to the top.
Richard Lightbound is CEO for EMEA & Asia at ROBO Global and Aanand Venkatramanan is head of ETF Investment Strategies at LGIM