Why I'm Bullish Robotics And AI In 2020

As we enter 2020, it’s amazing how the media, and many investors, begin with such a negative vision about what can go wrong versus what can go right. Despite the pervasive sentiment that things are getting worse, people are richer, healthier, freer and safer than previous generations. Panic is in the air after the death of Iranian General Qasem Soleimani.

But just as with the 2017 "fire and fury" episode with North Korea, such events are more likely indicative of coming peace, not coming war. In 2019 we climbed a wall of worry, overcoming fears from a trade war with China and yield curve inversion, among others. Now, we see a mid-cycle refresh that can extend the expansion. Going forward I believe investors need to focus their attention and dollars on the future, particularly in areas primed for disruption and not yet at premium valuations. The industry where we see this opportunity is robotics and artificial intelligence.

Why We’re Bullish

In December 2018, we articulated our extremely bullish view on this theme based on penetration rates being at their nascent beginnings and the ROBO Index being at its lowest levels in history. Today, valuations stand at historical averages, but earnings are set to enter a new upcycle.

As we move into 2020, we expect earnings to accelerate in both the ROBO and AI strategies, in contrast to anemic growth forecasts by most strategists. Early in 2019, we argued that in order to see a meaningful rotation of flows from the U.S to rest of world, investors would likely have to see sustained outperformance—or in other words, experience a little ‘FOMO’—however, given the trajectory of Cyclicals vs. Defensives throughout Q4, I think the argument could be made that we may be at that inflection point now.

With 56% of our portfolio outside North America, the ROBO strategy should benefit from international tailwinds and its balanced diversification. The Asian flu has subsided, and we are seeing improvements in factory automation.

However, Europe will be one area to watch in 2020, with the relative valuation discount vs the U.S. at 37%. With the Brexit overhang effectively cleared up, Eurozone equities could re-rate. And with 7% of ROBO in Germany alone we remain optimistic.

The fundamental building blocks of the 2020s will be robotics and artificial intelligence. Every industry and region is going on a journey to become more digital and more automated. It’s why we created two indexes to support this theme: the ROBO Global Robotics and Automation Index (which is tracked by the Robo Global Robotics and Automation ETF ROBO) and Robo Global Healthcare Technology & Innovation Index (which the Robo Global Healthcare Technology and Innovation ETF HTEC tracks).

We are on the cusp of ubiquitous automation, which we believe will enhance productivity for society and returns for investors. The only question is how will you participate?

William Studebaker is the President & CIO of ROBO Global