As the Australian ETF market begins to mature, the number of new ETF listings have begun to slow down. However, this has meant that any new listings coming through tend to focus on specific market niches or themes rather than the more broad based markets that we saw in the early days of the rise in ETF popularity. ETF Securities, after earlier this year taking back the branding of their ETF products (previously having a joint venture with ANZ), have recently been launching a number of new ETFs that focus on some of these themes. We took a look at their technology focused ETF (TECH) earlier this year.
Today we’ll take a look at their two latest ETFs, the ETFS ROBO Global Robotics and Automation ETF (ROBO) and the ETFS Global Core Infrastructure ETF (CORE).
As its name suggests ROBO’s focus is on companies involved in Robotics, Automation and Artificial Intelligence. Over the last 20 years we've seen more and more robotics automation replacing the menial or dangerous jobs that humans used to do as well as artificial intelligence move from something out of hollywood to something that is beginning to help us day to day. This ETF is attempting to capitalise on this opportunity this presents, by investing in those companies at the cutting edge of this technology. Many futurists are calling this change the biggest since the industrial revolution and as computing power continues to exponentially grow, this is only going to power transformational changes in ways that may currently be difficult to fathom.
The fund tracks the ROBO Global Index, which applies certain filtering criteria such as requiring included companies to be of a minimum size, minimum liquidity levels and allocates 40% to ‘bellwether’ companies, those which core business relates to robotics and automation and 60% to ‘non bellwether’ companies, those who have a large proportion of their business dedicated to robotics and automation.
Unlike some of the other ETFs in the technology space, ROBO does not include any household names in its largest holdings. You won’t find Google, Facebook, Apple or Amazon here, rather the likes of:
Interestingly the sector allocation is broader than one might expect, with an 8% allocation to healthcare, 5% agriculture, 10% logistics as well as 16% and 15% allocations to the sectors more often associated with robotics and automation, Computing and Manufacturing. These sorts of allocations further add to the argument that this is a play in transformational change in business as a whole, rather than a sector specific play.
Whilst the ETF is new to Australia, the ROBO Global index goes back 2013, although has been backtested to 2002. Returns since that period have been stellar, with the index riding the wave of these new technologies beginning to mature. According to ETF Securities, the index has a 27% pa return over the last 5 years. Of course past performance should never be considered an indication of future performance, and this is particularly true for those industries which have undertook rapid growth as they begin to mature.
ROBO is an interesting ETF, with no real competitors on the ASX. The closest relatives are the technology focused ETFs covered as part of our earlier post, however as previously mentioned, the tech ETFs tend to be heavy on the household Technology stocks (Apple, Facebook, Google, Amazon), not these highly specialised robotics, automation and AI companies owned by ROBO.
ROBO has a 0.69% pa management fee and an expense recovery fee estimated at 0.13% pa (bringing total costs to 0.82% pa). ROBO offers distributions annually.
If ROBO was at one end of the excitement spectrum, it could be argued that CORE is at the other end, with the fund focusing not only on infrastructure, but including filters to only invest in those it deemed to be the least volatile. Infrastructure may be boring to many, but one can’t doubt its importance. It’s the roads, railways and utilities that allow society to function and even in a disrupted world most of this infrastructure will continue to exist.
The top holdings include airlines, airports, energy companies and postal services, with a 36% allocation to US companies, 16% and 10% to Asian powerhouses Japan and Hong Kong, and about a 15% allocation to European companies.
The Solactive Global Core Infrastructure Low Volatility index which CORE follows provides exposure to at least 75 listed infrastructure companies. It is weighted not be market capitalisation as most indexes are, but by historic volatility, with those companies that are the least volatile having a higher weighting in the index. ETF Securities are reporting a 16.1% pa return on the index over the last 5 years.
For those wanting to invest in infrastructure, there are a few options available on the ASX. Vaneck offer a global infrastructure fund which is hedged to Australian dollars. In the actively managed space AMP offer a Global Infrastructure Exchanged traded managed fund, and Argo, Magellan and URB all offer LICs in this space. CORE is the lowest cost infrastructure offering on the ASX. You can see all infrastructure offerings in the ETF Watch Fund Database.
CORE has a 0.45% pa management fee and an expense recover fee estimated at 0.10% pa (bringing total costs to 0.55% pa). CORE offers distributions quarterly.
It’s great to see more thematic ETFs appearing on the ASX, with investors now able to make sector specific plays that were previously only available to institutional investors. We’re excited to see what new offerings are coming in 2018.