Tracking the Rise of the Robots?

4th Oct '17 by iwright7

60 comments 15460 reads

I am normally a bottom up UK small cap stock picker who uses Stockrank data as an integral part of the selection process. But a podcast last week made me think that I might be missing a trick and that I should apportion a part of my portfolio into ETFs that would give me exposure to thematic niches that are not readily available in the UK.

The catalyst for my change of thinking was a “We Study Billionaires” podcast last week, focusing on Artificial Intelligence and Robotics – see link

https://www.theinvestorspodcas...

The interview is with Martin Ford the author of the book, Rise of the Robots who highlights the effect of FAANG companies (Facebook, Apple, Amazon, Netflix and Google) and their rapid adoption of Artificial Intelligence. These companies are investing huge sums of money into AI and Robotics as a source of future competitive advantage.

Greater automation and AI will negatively impact blue collar employment and may decimate the financial industry who will no longer need soo many Quants, Analysts and Advisers.

At the end of the interview a Robotics/AI themed ETF called ROBO gets a brief mention. The ROBO ETF includes 90 Robotics and AI companies from around the world and their YTD gain is an impressive +35%, so it’s a niche that is doing incredibly well.

http://www.morningstar.co.uk/u...

Irrespective of the profitability of the ROBO component companies, what strikes me is that if only a few of them develop effective disruptive technology they are likely be bought out for $billions by the FAANGs of this world. This could be an unusual situation where company revenues, returns and rankings hardly matter.

I have researched this area since and brought into ROBO and another smaller similar themed ETF called BOTZ (up +45% YTD).

Do others have similar AI/Robotics companies or funds in your portfolio?

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Ramridge

30th Oct '17

Hi Ian -
Have a look at their previous acquisition, only a few weeks before Moravia. It is stated to be an online crowdsourcing platform.
RWS are not afraid to adopt new (unique?) ways to offer their patent translation services.

JMLDutch

I am also a big believer in AI / machine learning etc. However, rather than buying ETFs, I think it could be better to buy into the big players (FB, Amazon, Apple, Alphabet, Microsoft and perhaps Nvidia). They have their fingers in so many pies, they almost function like ETFs anyway. Also, in this brave new world, data is the new commodity, something the big players have plenty of.

Also, in particular for FB and Alphabet I believe the valuations are quite compelling taking into account the large amounts of cash, earnings quality and in particular PEG ratio. I do not really understand the valuation of Amazon, so I steer clear of that one.

iwright7

Ram,
Yes it looks like AOP will be synergistic to its patent translation work although I see that AOP only has of sales $3.7M and is expected to be earnings neutral in 2018. Moravia by comparison has sales of $159M and is expected to be immediately earnings enhancing.

Previous RWS Holdings (LON:RWS) acquisitions have contributed to their "best year ever" and "adjusted profit ahead of market expectations". Its the AI step change though that most interests me. Ian

Rusty2

Yes I think Nvidia are well involved with AI. Also have a look at Cognex.

There is a new and fascinating Bloomberg podcast discussing the Big 4 Players Hidden DNA here:

https://www.bloomberg.com/news/audio/2017-10-27/scott-galloway-discusses-four-world-conquering-companies

Its a difference in view that makes a market.

Hi Ian -
Just finished listening to the Bloomberg podcast. Excellent find and thanks for the link.
Completely agree with Scott Galloway that a potential 5th contender is Netflix and it would make a great fit for Apple. Apple could afford Netflix from pocket change.

Ram, Yes I agree Apple could buy Netflix, but the valuation is too high to tempt me to buy into Netflix - Would rather take a view on more modest PER stock which is in the ascendancy.

Yes Netflix do look expensive, considering their EPS is less than it was 5 years ago, mcap is £66bn probably more than pocket change, to buy them they will probably need around £90bm.

Apple are also looking expensive considering the lack of growth in the last few years.

JohnEustace

Apple are investing heavily in their own shows. They just hired Jay Hunt to head up their European content.
I've previously seen them as a good fit with Disney, especially given that Lauren Jobs owns 7.3% alongside her Apple holding, but it seems they prefer to build their own business by hiring and buying in talent. Even the Beats acquisition was more about getting Johnny Iovine on board.
It looks like being a three way battle between Netflix, Amazon, and Apple.
https://www.theguardian.com/technology/2017/oct/25/apple-has-netflix-and-amazon-in-sight-as-it-hires-uks-top-tv-executive

Nvidia are very much involved in AI for data centres. They recently partnered with the largest Chinese cloud data firms.
They are also heavily involved in self-driving car technology.
Their original graphics card business continues to do well. The only bit of their recent growth that I'm less happy about is their crypto-currency mining hardware sales, but I'm not a Bitcoin fan.
I am an Nvidia holder.

https://www.marketwatch.com/story/nvidia-strikes-deals-for-ai-focused-chips-with-chinese-tech-giants-2017-09-25

John -
Yes, Apple definitely have the Not Invented Here (NIH) syndrome.
They like to design and build their own products. With the new iPhone X, they have even designed the advanced A11 Bionic chip, something that Intel would find challenging.

Mike Rawson

31st Oct '17

Not directly relevant to investing (and please remove if you consider this spam), but I run a blog on emergent technology which could help to keep people in the picture.

It's called Robot Watch - http://robotwatch.co/

The robotic theme has made me look again at companies I have held in the past with a view to developing a UK themed Robotics/AI sub-portfolio. The car Robotics testing company that comes to mind is Ab Dynamics (LON:ABDP) whose share price has been flat recently, but the price is picking up on news of a record order book and their imminent results in mid-November.

Largest Ever Robot Order: https://www.digitallook.com/news/aim-bulletin/ab-dynamics-receives-largest-ever-driving-robot-order--2810296.html

Ab Dynamics (LON:ABDP) is on the verge of completing a new state of the art car testing factory in Wiltshire. Some shots of the new AB factory can be seen in this video, around 16 mins in…..

https://www.youtube.com/watch?v=FP76mQgJhMQ

Further factory expansion is clearly planned and it looks to me as though they are working on the principle of; “If you build it, they will come”. I previously doubled my money on AB Dynamics and with a UK Robotics/AI sub-portfolio in mind I have re-brought an initial position this morning.

I used to hold Ab Dynamics (LON:ABDP) until fairly recently, was considering buying back in but the directors selling rather put me off. Will wait for the results.

harrymunro

As an engineer who specializes in machine learning I can safely assure you that AI and robots will be prevalent in ALL industries not just FANG and tech. The FANG and tech companies are the ones who pioneer the use of automation, however it eventually trickles down into more conservative companies.

A good example of this is driverless transport. We already have driverless trains in some areas (London's DLR springs to mind) and we will eventually likely start to see more driverless cars and busses on the road. Eliminating the need for a driver greatly reduces the costs associated with transport and should also improve reliability - so companies like Royal Mail and Go Ahead group should benefit strongly from automation.

So my point is not to try and find companies that "do" automation/robots/AI but rather to see the technology as an enabler for normal companies to drastically reduce operating costs and improve quality and productivity.

I take the point about normal companies adopting and benefiting from Robotics/AI, but it is the suppliers of this technologies that are likely to benefit soonest and the most from their widespread adoption. Ian

It will be interesting to see how it works in the UK, I know the unions will bitterly oppose it, you can see that from long running disputes over guards on trains on southern rail. If Labour do win the next election then it will take even longer. I think companies like Amazon will benefit from robots in warehouses, should be quicker and more accurate than humans, also the warehouse can hold more capacity. here is a short video: https://www.youtube.com/watch?v=cLVCGEmkJs0

1st Nov '17

Herbie, Nice Amazon video and these guys are 24hrs/day with no lunch breaks.

Regarding £ABDP - Not long to wait until results on 15th Nov, but I have faith in the company and sector so rather than wait for a possible positive announcement to be baked into the price on the morning of the results, I have made a preemptive buy. Whilst the valuation is much higher than a few years ago @ 22PE, it still may end up looking cheap. I may top up again on the day of results (when hopefully in profit), depending on the newsflow. Ian

9th Nov '17

I see a new A.I. run stock selection ETF has been lunched in the US, called AI Powered Equity - AIEQ. Its governed by the IBM Watson computer. Like many ETFS it uses algorithms to select mis-priced stocks, but its real claim to fame is that it apparently earns from its mistakes!

https://www.benzinga.com/trading-ideas/long-ideas/17/10/10196990/robots-rule-this-etf

I have to assume that the Watson platform has been back tested and the ETF management are happy with the outcome. It will be particularly interesting to see what happens in a bear market, so I have decided to take a £1K “marker” position today to be at the start. As ever please DYOR. Ian

15th Nov '17

Continuing the Robot investment theme Ab Dynamics (LON:ABDP) have reported excellent final results today commenting .... "Demand for Driving Robots and Guided Soft Targets are at an all-time high"

And "Our customers remain very active in introducing Advanced Driver Assistance Systems and in the development of semi and fully autonomous vehicles. Our order book is at a record level and we have visibility into the Q3 of our new financial year.

....Since our IPO in May 2013, we have delivered compound annual growth in revenue and adjusted profit before tax of 19% and 28% respectively".

Buffett’s famous dictum comes to mind...."Its far better to buy a wonderful company at a fair price, than a fair company at a wonderful price". Its time the Robotics ETFs took an interest in AB. Ian

Tracking the Rise of the Robots?

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Iwright7

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