Although many new ETFs have followed a ‘back-to-basics’ approach
lately—focusing on segments like dividends, IPOs, or bonds—there
are still a few ETF providers that are bringing fresh ideas to
market. This includes the latest such launch under the
‘Exchange-Traded Concepts’ umbrella, with the
ROBO-STOX
Global Robotics and Automation Index ETF (ROBO).
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 (read Alternative ETF Weighting
Methodologies 101).
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 (see all the
top ranked ETFs here).
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
(SOCL) and the
First Trust ISE Cloud Computing
Index Fund (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.
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3D SYSTEMS CORP (DDD): Free Stock Analysis Report
IROBOT CORP (IRBT): Free Stock Analysis Report
FT-CLOUD COMPUT (SKYY): ETF Research Reports
GLBL-X SOCL MDA (SOCL): ETF Research Reports
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