SET Monthly Issue August 2017
THE ROBOT REVOLUTION
Hot trends have a nasty way of pouring cold water on investors’ hopes. We do our best to avoid the latest fashions… sectors where investors who should know better mindlessly jump on bandwagons which have already had their day.
But there is one sector where we believe this year’s sizzling activity will be with us for years to come… even if it goes through some selloffs and cooldowns.
Robotics is hot. A few U.S. robotics stocks have tripled in value over the past year.
The industry is growing quickly. Global revenues are forecast to surpass $150 billion in 2020, based on research from the consulting firm Tractica. Right now, they’re less than $40 billion.
The industry’s most significant growth is expected to come from so-called “non-industrial robots”. This includes self-driving vehicles, and robots used by consumers, medical facilities, and the military.
Here in the U.S., firms such as Rockwell Automation, Inc. (ROK) are riding this wave, and their rising stock prices reflect this. But we’re going to enter this sector through a different door, and take a more global approach to the opportunity.
This month’s recommendation is The Global X Robotics & Artificial Intelligence ETF (BOTZ).
IS IT TOO LATE FOR BIG PROFITS?
Maybe. But we’ll be happy to reel in modest, consistent profits for years to come. We don’t see artificial intelligence and robotics as a fad, but a fundamental shift, and a rearranging of the economic landscape.
You’re probably noticing it already. Self-checkouts at the supermarket. Fewer tellers and more machines in bank lobbies.
And it’s not just companies such as J.P. Morgan Chase and Kroger who are investing in automation. There’s Google (Alphabet), Microsoft, IBM, General Motors, Amazon, Northrop Grumman, and hundreds more.
The story of robotics is not set in the future. You can see it unfold in hospitals, where more than 3 million patients have now been treated with technologies such as the da Vinci Surgical System, a product of Intuitive Surgical (ISRG).
It’s a robotic surgical process that lets doctors operate through small incisions.
What lies ahead? We’re hesitant to predict the specifics, but we see a future where the role of human labor is in for massive change. In factories around the world, not just in America, human labor is at risk. The history of manufacturing shows us tasks that can be performed by machines eventually are performed by machines.
But it’s not just factories. Hospitals, banks, fast food restaurants, transportation… wherever we see people working today, we shouldn’t be surprised to see fewer people working tomorrow.
Don’t expect government regulators to pass laws to protect jobs and put the brakes on technology. As U.S. Commerce Secretary Wilbur Ross said recently, “I’m not in favor of trying to hold back technological advance.”
Ross sees what investors see… artificial intelligence and robotics changing the way manufacturing takes place everywhere, including China, Europe, and Vietnam.
This global shift is why we want our investment to reflect global exposure. And it’s why our search for a targeted opportunity brought us to The Global X Robotics & Artificial Intelligence ETF (BOTZ).
INSIDE BOTZ
BOTZ is a new ETF. It was launched in September 2016.
The ETF mirrors the Indxx Global Robotics & Artificial Intelligence Thematic Index. The index is designed to track exchange-listed companies in developed markets that are involved in the manufacture and marketing of artificial intelligence and robotics.
There are just 29 stocks. 63.9% of the assets are in the ETF’s top 10 holdings. The expense ratio is .68%.
The stocks are heavily weighted toward Japan, which contributes 48% of the ETF. By comparison, U.S. stocks represent 21%. There are stocks from nine developed countries.
WHY WE LIKE BOTZ
It’s the combination of global diversification and technology. The ETF includes significant U.S. players, and doesn’t turn its back on Silicon Valley, but provides an opportunity to profit from firms that will be on the front lines of bringing robotics to China, Vietnam, and other offshore manufacturing markets.
THE TOP 5 HOLDINGS
| Company Name | Sector | % Weight | |||
| NVIDIA Corp. (NVDA) | AI/Robotics | 8.17% | |||
| Mitsubishi Electric Corp. (MIELY) | AI/Robotics | 7.61% | |||
| Fanuc Corp. (FANUY) | AI/Robotics | 7.25% | |||
| Intuitive Surgical Inc. (ISRG) | AI/Robotics | 7.19% | |||
| ABB Ltd (ABB) | AI/Robotics | 7.07% | |||
| 07/28/17 | |||||
BREAKOUT: TOP 5 HOLDINGS
NVIDIA Corp. (NVDA)
NVIDIA Corporation is a Santa Clara, California firm that’s been around since 1993. It focuses on visual computing technologies. Among other processing products, it develops both chips and computing systems for self-driving vehicles.
Mitsubishi Electric Corp. (MIELY)
The firm best known for consumer electronics has a major stake in turbine generators, nuclear power plant, and power electronics equipment. As the nature of this equipment changes, and robotics become more integrated, Mitsubishi is in an excellent position to benefit from increased demand. The Japanese company was founded in 1921.
Fanuc Corp. (FANUY)
Fanuc is a newer and less well-known Japanese firm. It is a pure play on factory automation… marketing products such as lasers, robots, compact machining centers, electric injection molding machines, and wire-cut electric discharge machines.
Intuitive Surgical Inc. (ISRG)
This is the firm that markets da Vinci surgical systems and related medical instruments. The Silicon Valley firm markets its products globally. Intuitive’s flagship da Vinci surgical systems are expanding, and its ability to translate a surgeon’s natural hand movements into operating room procedures is growing.
ABB Ltd (ABB)
The Swiss firm has been in business since 1883. It is developing robotics and motion products for industrial users, focusing on utilities, transportation, infrastructure, energy, and industrial segments. ABB has a strategic partnership with IBM to develop and expand its industrial artificial intelligence solutions.
THE ROLE OF BOTZ IN YOUR PORTFOLIO
Two bases are covered… one is global and the other is tech. This ETF is appropriate for growth, not so appropriate for income. Right now, there are no dividends paid.
Trade Alert
Buy: Global X Robotics & Artificial Intelligence ETF (BOTZ) up to $20.50
Recent Price: $19.88
Price Target: $26.50
Stop Loss: $16.75
SECTOR SPOTLIGHT
52 WEEK SECTOR PERFORMANCE
| Consumer Discretionary | XLY | +12.27% | |||
| Consumer Staples | XLP | +6.98% | |||
| Energy | XLE | -11.75% | |||
| Financials | XLF | +7.14% | |||
| Health Care | XLV | +15.88% | |||
| Industrials | XLI | +9.93% | |||
| Materials | XLB | +9.94% | |||
| Real Estate | XLRE | +5.98% | |||
| Technology | XLK | +18.20% | |||
| Utilities | XLU | +9.20% |
PORTFOLIO UPDATES
. . . . Vanguard Financials ETF (VFH) – HOLD
There’s been modest growth over the past month. The ETF is now above its buy up to price, but barely. Monitor and acquire more shares on any dips.
. . . . VanEck Vectors J.P. Morgan EM Local Currency Bond (EMLC) – BUY
The ETF has now recaptured the mild loss it suffered after we acquired it, and is below our buy up to price. The yield is 4.96%.
. . . . Vanguard FTSE All-World ex-US Index Fund ETF (VEU) – HOLD
The past 30 days have been solid for global stocks. The ETF is now up 6% since we recommended it in May.
. . . . SPDR S&P Metals & Mining ETF (XME) – BUY
One step forward, one step back. The ETF has given back recent gains and is attractively priced once again. We continue to expect solid growth ahead.
. . . . iShares MSCI Switzerland Capped ETF (EWL) – HOLD
The ETF has delivered a 13% return since March. We’re looking for more growth ahead, albeit at a more modest pace.
. . . . Vanguard REIT ETF (VNQ) – HOLD
As the share price climbs, the dividend yield dips slightly. But it is still a solid 4.43%. We recommended this ETF for income, not for capital appreciation, so it’s a bonus to see the price up 6% since December 2016.
. . . . First Trust ISE Global Engineering & Construction Index Fund (FLM) – HOLD
There’s still nothing substantive on the table as far as federal government plans for infrastructure spending. But the ETF is continuing to post gains.
. . . . Vanguard High Dividend Yield ETF (VYM) – HOLD
After a dip earlier this summer, the ETF has made up for lost ground. It’s now up 9% from when we recommended it in September 2016. Current yield is 2.95%.
. . . . Utilities Select Sector SPD (XLU) – HOLD
No changes. Continue to hold. This ETF remains a core position. Current yield is now 3.28%.
Portfolio Changes
- Buy Global X Robotics AI ETF (BOTZ)
Category: SET Monthly Issues
