ROBO Global Robotics & Automation Index, the world’s first benchmark index to track global companies that focus on robotics, automation and artificial intelligence, said Monday that once again, “best-in-class robotics and AI stocks” are trading on valuations “unseen” since the inception of the index in 2013 — just as “adoption across the sector is accelerating.”
“After returning a total 51% in the prior two years, the ROBO Global Robotics & Automation Index declined 22% during the 4Q18 global equity rout that was caused by a perfect storm of monetary tightening, geopolitical uncertainty, and renewed fears of a US economy that is ‘as good as it gets,’ wrote Jeremie Capron, director of research, at ROBO Global in a research note.
BIG PICTURE: ROBO Global captures the high-octane growth of robotics and artificial intelligence
As we all know, 2018 delivered a “brutal combination” of monetary tightening, yield curve flattening, the escalation of geopolitical risks around US-China trade and Brexit, and slowing capital investments.
Highest historical returns
Therefore, while a near 22% quarterly decline is sharp, it must be viewed against the tremendous returns delivered by the ROBO index in recent years, most notably a total 72.9% in 2016 and 2017, compared to 26.7% for the MSCI AC World Index over the same period.
“This marked only the third time the index declined more than 20% in the past fifteen years (4Q08, 3Q11 and 4Q18),” wrote Capron.
This was the largest quarterly decline since the inception of the index in 2013, and all 12 subsectors within the index suffered double-digit losses.
Half the index is made up of companies that are linked to the enabling technologies of robotics and automation. Those enabling technologies include sensors, processors, machine vision, computing, AI and actuation, which is a set of components that allow robots to move.
READ: ROBO Global, world’s first benchmark index to track robotics, automation and artificial intelligence, turns five
The other half of the index is made up of the "end market" or applications — the applications consist of end-use robotics. There you see where robotics is penetrating different areas of the economy. Industrial manufacturing all the way to logistics automation, health care, consumer products, energy, precision agriculture and even into 3D printing and surveillance.
“In many respects the current situation appears comparable to the fourth quarter in 2015. Once again, best-in-class robotics and AI stocks are trading on valuations unseen since the inception of the index in 2013 — just as adoption across the sector is accelerating rapidly,” wrote Capron.
BioBioTelemetry and Xilinx are top performers
Top contributors to the benchmark index in the fourth quarter included mobile cardiac monitoring technology provider BioTelemetry Inc (NASDAQ: BEAT) and Xilinx Inc which designs and develops programmable devices and associated technologies worldwide.
Top detractors were Oceaneering International (NYSE: OII), a global provider of engineered services and products to the offshore oil and gas industry and chipmaker NVIDIA Corporation (NASDAQ:NVDA).
In the ROBO world the pure-play stocks — companies such as Intuitive Surgical (NASDAQ:ISRG) and iRobot Corp (NASDAQ:IRBT) — have an approximate 2% weighting in the 87-strong ROBO index. The hybrids are individually at about 1%.
Big potential upside
“Perhaps most importantly, for investors looking for bargains, the ROBO index closed 2018 at valuations unseen since its inception in 2013, with a median forward P/E of 17.1x—a 22% discount to the five-year average of 21.9x,” wrote Capron.
He noted that as we enter 2019, “inflation has already peaked, and while global CAPEX indicators continue to deteriorate, they are “already back in bottoming territory.”
“If trade conflicts are resolved and the US consumer continues on its robust upward trajectory, we think earnings could surprise to the upside,” wrote Capron.
Investors can buy directly into the popular ROBO ETF based on the benchmark index comprised of 87 top robotics, automation and AI companies.
Six years ago, when the ROBO Global team partnered with Exchange Traded Concepts to launch the ROBO Global Robotics & Automation Index ETF (NYSEArca:ROBO), it marked the first time such an investment strategy was available.
The increased investor appetite for exposure to robotics, automation and artificial intelligence (RAAI) stocks is reflected in the size of the ETF, which crossed $2.08 billion in assets under management in September 2018.