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Betashares bets on Robotics and AI with RBTZ ETF

ETF Watch - Sep 19, 2018

Here at ETF Watch we love seeing new ETFs launched. None more so than ETFs that attempt to home in on future megatrends. Betashares are targeting one of these megatrends, being Robotics and Artificial Intelligence with their Global Robotics and Artificial Intelligence ETF (RBTZ). Today we take a look at RBTZ.

What is the Robotics and Artificial Intelligence Megatrend?

In recent years we’ve seen robotics automation replace many of the menial and dangerous jobs completed by humans. We’ve also seen artificial intelligence move from the fringes to the mainstream, with voice assistants like Amazon Alexa and Apple Siri and ‘chatbots’ becoming AI tools that people interact with every day.

These are trends that most believe are only in their infancy, and as computing power grows exponentially, will become more sophisticated over time.

Betashares CEO Alex Vynokur describes this megatrend: “Ageing populations, rising labour costs, and an opportunity for performance improvements are all significant economic incentives promoting further development of the area, explaining significant growth in the adoption of robotics and artificial intelligence solutions across a number of industries.”

What does RBTZ invest in?

RBTZ tracks the Indxx Global Robotics and Artificial Intelligence Thematic Index. It invests in companies with a market capitalisation of more than $100m, that would be ‘positively impacted by robotics and AI’. This includes Industrial Robots and Automation, Unmanned Vehicles and Drones, Non-industrial Robotics and Artificial Intelligence.

Those companies that derive greater than 50% of revenue from a list of sub-themes are considered by the index as ‘pure play’ robotics or AI companies and are eligible for inclusion in the index, with the top 100 ‘pure play’ companies by market capitalisation to be included in the index. If there are less than 100 pure play companies, then the index can invest in ‘quazi-play’ companies to benefit from the identified sub themes.

These 100 companies are then invested in as per their market capitalisation, with a cap of 8% applied to any one security and a floor of 0.3%. To avoid too much concentration, those with a weighting of over 5% are capped at 40% of the total portfolio.

The top 10 companies include the likes of chip maker NVIDIA, Fanuc, a manufacturer of industrial robots and Intuitive Surgical, producers of robotic-assisted, minimally invasive surgical systems.

Unsurprisingly, this growing trend has delivered exceptional returns to investors, with the index returning 35% per annum over the last 3 years according to Betashares.

What else is available for investors interested in Robotics and AI?

There’s one clear competitor to RBTZ in the ETF world. Launched around this time last year, the ETFS ROBO Global Robotics and Automation ETF (ROBO) has returned around 20% to investors since listing and now has $128m in assets under management.

By name, the two funds look very similar, but the underlying holdings are remarkably different. Firstly, RBTZ is a market cap weighted ETF, whereas ROBO is an equal weight ETF. This means that RBTZ will invest as per the size of the underlying companies in the portfolio, but ROBO will invest roughly equally across the whole portfolio. The top 10 companies within RBTZ currently make up around 60% of the portfolio, with ROBO’s top 10 making up 21% of the portfolio.

Additionally, the methodology behind selecting companies to be included in each index is different, meaning many of the underlying holdings within each fund are different. RBTZ has identified a number of themes and sub-themes and attempts to identify companies set to benefit from that theme. ROBO splits its portfolio construction between companies whose core business is related to Robotics and Automation and those who have the potential to grow through innovation in this space.

The result of the above is quite different looking portfolios for both RBTZ and ROBO. This extends to their country exposure, with RBTZ largest country allocation being Japan at 42%, followed by the United States at 32%. ROBO on the other hand’s largest country allocation is the United States at 47% followed by Japan at 23%.

More Megatrends to come?

Betashares have promised more ETFs focusing on emerging megatrends. With ETFs focusing on blockchain innovators and Asian technology due soon. We’re excited to see what these look like and will report on them when they become available.

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