By Richard Lightbound, CEO EMEA, ROBO Global
It seems everyone wants to jump on the robotics bandwagon these days. It’s no surprise. Robotics, automation, and artificial intelligence—or RAAI—includes many of the most exciting companies in today’s universe of emerging technologies.
Plus, because this sector is considered a must-have capability in nearly every industry in every corner of the globe, the potential for growth across the robotics supply chain is tremendous.
That doesn’t mean, however, that all robotics investments or investment strategies are created equal. As investment firms and ETF providers race to deliver robotics-focused products, it’s more critical than ever to analyze each approach with vigilance.
Follow these five simple rules to explore the pros and cons of each offering and choose an investment strategy that fits your own needs and long-term goals:
1. Select investments that fit within your existing portfolio.
In today’s market environment, diversification is key. And while many investors look to RAAI to provide a new level of diversification, many strategies fail to deliver because they include a short list—sometimes as few as 20 companies—of common large-cap equities.
While these companies may be the current market leaders, it’s possible, if not probable, that these companies are already included in your portfolio. Rather than choosing a fund because it’s branded as a “robo” solution, scrutinize each fund to determine if its holdings support low- or no-correlation with common equity benchmarks, and if the holdings create an overweighting of large-cap exposures. Look for a broad range of exposures with limited weighting, regardless of the market cap, growth, or momentum of the individual stock.
2. Seek out the largest growth potential.
It’s easy to assume that the biggest names with the largest market caps will deliver the greatest investment returns. However, just as in any emerging industry, the greatest potential for growth in the robotics sector is in emerging technologies that, in many cases, are developed by private or public small- and mid-cap companies.
As the “picks and shovels” of the robotics supply chain, these companies deliver the components and capabilities that feed multiple products in multiple geographies across industry sectors. It’s here where the true opportunity for growth exists.
Look beyond strategies that focus heavily on large-cap equities with minimal association or purity to RAAI and focus on those that leverage the broader growth opportunity of small and mid-cap companies from around the globe.
3. Look for guidance from robotics experts.
Robotics is a complex, emerging industry. As a result, predicting its direction—and the companies who are best positioned to support that trajectory—requires much more than basic financial analysis.