Rise of the Machines Gives Rise to this ETF | ETF Trends

As artificial intelligence and robotics become increasingly relevant parts of the disruptive technology investment lexicon so will exchange traded funds, such as the ARK Autonomous Technology & Robotics ETF (CBOE: ARKQ).

Robotics and artificial intelligence are making machines smarter and more capable than ever before, allowing robots to take on increasingly sophisticated tasks for faster and more accurate production. Declining computer chip costs and improving connectivity allows for virtually any object to connect to internet-enabled networks, effectively turning anything into a connected device.

Robots have been able to supplant humans to help stem the tide of coronavirus infections and artificial intelligence has been able to interpret data related to Covid-19 at alarming speed. While this might seemingly pose a threat to jobs, the disruption could actually help create new jobs.

What makes ARKQ a compelling idea in this still nascent investment arena is that it’s an actively managed. That’s a plus in an investment niche where indexing can be confining or potentially lead investors to company with disappointing rates of growth and profitability.

ARKQ Figure Y Charts

Angles on ARKQ’s Themes

ARKQ addresses a primary concern often associated with thematic ETFs: Viability of the underlying theme. Fortunately, AI and robotics are durable trends that are in their early innings.

“The business case for automation is strong,” says Morningstar analyst Alex Bryan. “Labor costs in emerging markets, where many firms have located much of their labor-intensive operations, have risen considerably over the past two decades. The rise of protectionism has made offshore production less appealing.”

The actively managed ARKQ invests in companies that potentially stand to benefit from increased adoption and utilization of robotics and artificial intelligence (AI), including those involved with industrial robotics and automation, non-industrial robots, and autonomous vehicles. Industrial robots are pivotal to the broader robotics investment thesis.

“It’s clear that robotics and AI will become a bigger part of how business is done and more integral to many consumer products in the future. That’s not sufficient to make a robotics and AI ETF a good investment,” writes Bryan. “The market is well aware of this growth opportunity. It’s the reason many companies positioned to directly benefit from these trends are trading at rich valuations. Yet there may be more room for these firms to surprise on the upside, as the opportunity is big and will probably become larger over time, as advancements in technology expand what is possible.”

For more on disruptive technologies, visit our Disruptive Technology Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.