Market Overview

The Long-Term Case For Robotics ETFs Remains In Tact

The Long-Term Case For Robotics ETFs Remains In Tact

Artificial intelligence and robotics stocks and exchange traded funds were pummeled in 2018. The Global X Robotics & Artificial Intelligence ETF (NASDAQ: BOTZ), one of the category’s largest ETFs, sank 28.3 percent on the year.

That was not the way to follow up 2017, a year in which robotics equities and ETFs soared. BOTZ surged 58 percent in 2017.

Making matters worse for AI and robotics funds in 2018 is that the year's losses for those funds far exceeded those of industrial and technology ETFs. Those are relevant comparisons because robotics ETFs are often heavily allocated to those sectors. The S&P 500 Technology Index lost just 1.7 percent last year while the S&P 500 Industrial Index slid 13.2 percent.

A slowdown in global economic activity, the U.S.-China trade spat and weaker-than-expected demand for some technology products were among the reasons BOTZ slumped last year.

“A cyclical slowdown in the global auto and cell phone industries, exacerbated by prolonged uncertainty surrounding the tit-for-tat trade war between the United States and China, as well as slowing global growth, caused many to reevaluate their near-term forecasts,” said Global X in a recent note.

Why It's Important

The $1.29 billion BOTZ tracks the Indxx Global Robotics & Artificial Intelligence Thematic Index. BOTZ and some rival robotics funds were once the darlings of the thematic ETF space, adding assets at enviable rates. Investors actually remained devoted to the robotics cause last year. After seeing inflows of $1.37 billion in 2017, understandable as the fund soared, BOTZ took in nearly $511 million in new assets as it tumbled last year.

“At the center of this was the industry’s X-factor: China. Spending approximately $36bn in 2018, it easily ranks as the top purchaser of robotics in the world,” said Global X. “For comparison, the United States, the second largest purchaser, is expected to have spent $12bn over the same period.”

BOTZ is a global fund as nine countries are represented within its geographic exposure, but Japan and the U.S. combine for over 77 percent of the geographic weight.

What's Next

Following last year's sell-off, BOTZ trades at nearly its lowest earnings multiples since inception in 2016. Those valuations and rising demand for medical robots in the U.S. are among the catalysts that could bolster the fund in 2019.

“Back in the US, one less business-cycle dependent space bucked the trend: healthcare robotics, which are used in areas ranging from medical exoskeletons to surgical devices,” said Global X. “The medical robotics market is expected to hit nearly $17bn by 2023, up from $6.5bn in 2018, with a compound annual growth rate (CAGR) of 21%.”

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