By Chris Buck and Andrew Martin, ROBO Global

One of every advisor’s biggest challenges is keeping your clients invested for the long run and sticking to the plan. Typical investor behavior helps to explain why investors want to buy high and sell low. “Investors are ‘normal,’ not rational,” says Meir Statman, one of the leading thinkers in behavioral finance. Investors tend to change risk tolerance based on the direction of the market. For example, investors’ willingness to tolerate risk may fall when markets are falling. Alternatively, risk tolerance may rise when markets are rising.

Unfortunately, no matter how many times you’ve been down this road before, once a client begins to feel the future is unsafe, it can be an uphill battle that can challenge even the most skilled and experienced financial advisor. One tool that can help you win that crusade is a compelling story that illustrates why investing for growth during a market correction is a valuable opportunity and, even more, how disciplined diversification can help manage risk.

The ROBO Global Robotics & Automation Index is the tool that supports that narrative. It all begins with an investment strategy that is focused on a high-growth theme—robotics, automation, and AI—that is experiencing one of the most dramatic skyward trajectories seen in decades. As well, the ROBO story includes key points that can help put even the most wary investor at ease during turbulent markets: frequent rebalancing, a focus on fast-growing sectors, and diversification across sectors, companies, and market caps. Here’s a brief look at each:

Quarterly rebalancing smoothens the ride by capitalizing on the latest trends

In the world of robotics, automation, and AI—or ‘RAAI’—extremely rapid development means that market leadership can change nearly as quickly as the technology itself. To respond to these inevitable shifts, the ROBO index is rebalanced to the appropriate % index weights on a regular, quarterly basis. Stocks that go up are trimmed, while those that go down are added. The index also goes through a quarterly reconstitution, adding companies that show new potential for growth and deleting companies that have lost market leadership. Using our rigorous ranking process and the unique insights of our research team, we identify an optimal mix of current market leaders and innovators who are poised for near-term growth—including companies that may be less than obvious to industry outsiders.

In 2018, there were a total of 21 strategic changes made to the index, including 7 additions and 7 deletions. An additional 7 companies were reclassified as ‘bellwether’ or ‘non-bellwether.’ Bellwether companies are well-established leading companies whose core business is directly related to robotics and automation; typically these operate on a global scale. Non-bellwether companies have a distinct portion of their business and revenue in robotics and automation and the potential to grow within this space through innovation and/or market adoption of their products and/or services.

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