Investors looking for the best stock-market performance have been well-served for many years by focusing on companies using new technology to increase their sales quickly and steadily. The performance of the S&P 500 index has borne this out.
Below is a screen of 24 stocks held among five exchange-traded funds that focus on companies involved with robotics and automation — booming technology for companies involved in many industries around the world.
For robotics and automation, here are five ETFs that take different approaches to playing innovation:
- The ARK Autonomous Technology & Robotics ETF ARKQ is actively managed and holds 46 stocks of companies involved with automation, robotics, autonomous vehicles, energy storage, 3-D printing and space exploration. It is highly concentrated; Tesla Inc. TSLA, its largest holding, is 11.9% of the portfolio.
- The Global X Robotics & Artificial Intelligence ETF BOTZ holds just 36 stocks. It tracks a global index of companies listed in developed markets. The companies are expected to benefit from the increased utilization of robotics and artificial intelligence. The largest holding is Intuitive Surgical Inc. ISRG, at 8.8% of the portfolio.
- The Robo Global Robotics & Automation Index ETF ROBO tracks a global index of companies involved in robotics, automation and AI and is rebalanced quarterly. The fund follows a tiered weighting strategy; the largest holding — Intuitive Surgical — is 1.8% of the portfolio of 84 stocks. It is the oldest of the five ETFs listed here, established in October 2013.
- The iShares Robotics and Artificial Intelligence Multisector ETF IRBO tracks an equal-weighed global index of companies involved with robotics and AI. It holds 120 stocks. The index is reconstituted annually and rebalanced twice a year.
- The First Trust Nasdaq Artificial Intelligence & Robotics ETF ROBT tracks the Nasdaq CTA Artificial Intelligence and Robotics Index, which ranks companies so that the portfolio is 60% weighted to “engagers,” 25% “enablers” and 15% “enhancers.” It holds 108 stocks.
Here’s some more information about the ETFs:
Here’s a summary of total returns for the ETFs against the SPDR S&P 500 ETF Trust SPY and the Invesco QQQ Trust QQQ, which tracks the Nasdaq-100 Index NDX :
All five of the automation and robotics ETFs have trailed the broad market this year. During 2020, ARKQ was a stellar performer in part because of its big bet on Tesla, which skyrocketed 743% for the year. ROBO has outperformed SPY for five years but underperformed QQQ for all periods.
A stock screen from five automation and robotics ETFs
The five ETFs together hold 251 stocks across 21 countries. Only two stocks — Intuitive Surgical and Nvidia — are held by all five. Only BOTZ doesn’t own stocks in companies based in China.
China may be a special area of risk for years to come. There’s no way of knowing how much change will be brought about by China’s regulatory crackdown affecting tech-related industries. Meanwhile, U.S. regulators’ actions as well as the conflict between U.S. and Chinese regulators over the availability of audit reports may affect investors holding shares of Chinese companies listed in the U.S.
Yet, as you will see, three Chinese tech giants held by some of these ETFs are highly regarded by Wall Street analysts.
For this screen, it is important to understand that in Wall Street parlance, there are two types of stock analyst. A buy-side analyst works for a money manager. A sell-side analyst works for a brokerage firm. They have different perspectives, and it might be best to rely on both, if possible. So the following screen starts by limiting the list to the 81 stocks held by at least two of the five ETFs described above.
Among those stocks, 70 are rated by at least five sell-side analysts polled by FactSet. Narrowing the list further, 24 of the 70 have at least 75% “buy” or equivalent ratings. Here they are, sorted by the 12-month upside potential implied by the consensus price targets.
Of course, consensus price targets (and recommendations) can change, and a 12-month target period is short for a long-term trend:
The prices and price targets are in local currencies where the shares are listed. The three Chinese companies on the list — Baidu Inc. BIDU, Alibaba Group Holding Inc. BABA and JD.com Inc. JD — area all listed on U.S. exchanges as American Depositary Receipts.
You can click on the tickers for more about each company.
Despite being held by all five robotics and automation ETFs, Intuitive Surgical didn’t make the list because only eight of the 19 sell-side analysts polled by FactSet rate the shares a buy or the equivalent. The stock closed at $1,053.56 on Aug. 30, having risen 29% for 2021, and was trading ahead of the consensus price target of $1,032.71.
This list is merely a starting point for further research about companies involved with the long-term industrial shift to robotics and automation. If you see any investments of potential interest, you should form your own opinion about a fund’s strategy, or a company’s strategy, and whether or not it is likely to remain competitive over the next decade.
