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Capturing Megatrends: Automation & Robotics

Jul. 31, 2017

Jul. 31, 2017

This is the second of four articles in a series on investment megatrends.  

In 1811 in Nottingham, England, a mob of angry blue-collar workers attacked factories and destroyed machines, protesting the use of automated pattern weaving systems that were displacing them from their textile manufacturing jobs and depriving them of their livelihood.1

The protesters became known as the Luddites, and received the backing of some economists who saw automation in factories as a source of unemployment and poverty.

Those predictions failed to materialize. Instead, the Industrial Revolution with its machines and mass production ushered in an era of wealth and progress, which in turn helped create jobs in novel industries and activities. Machinery advancements would end up improving the lifestyles of most – including the Luddites’ descendants.

Intelligent automated systems that are interconnected

A similar revolution is taking place now with Industrie 4.0, a name given by the German government to the industrial stage where possibilities are flourishing thanks to the interconnection of automation and artificial intelligence. Industrie 4.0 is creating one of the most dynamic and disruptive transformations seen by man, not just in manufacturing and production but also in everyday activities in sectors such as transportation, health care and retail.

According to a report from PwC,2 up to 38% of US jobs and 35% of German ones are at high risk of being replaced by machines by the 2030s.

With artificial intelligence poised to take over the jobs of truck drivers, painters, receptionists and even lawyers, the transfer of capital from employees to smart mechanics could be seismic. According to the International Federation of Robotics (IFR)3, 414,000 new industrial robots will be installed worldwide in 2019, more than double the amount in 2013.

Taking part of the supply in robotics and automation

STOXX has chosen automation and robotics as one of its four themes covered by the iSTOXX FactSet Thematic Indices, which track global, disruptive and modern megatrends defining the digital era.

The indices were developed as a way for investors to zero in on the long-term beneficiaries of these changes, while spending less than they would on active fund management. They represent a more precise vehicle to approach a megatrend and offer more effective exposure than would, for example, a sector index.

The iSTOXX® FactSet Automation & Robotics Index was designed to allow investors to participate in the profits of companies leading the way in the field also known /referred to as ‘cyber-physical systems.” The index is derived from the STOXX® Global 1800 Index and its members are equally weighted.

The index is compiled on a rules-based methodology and best-in-class database from FactSet Revere, whose granular analysis selects companies that derive more than 50% of their revenue from business activities linked to the megatrend in question.

For the Automation & Robotics index, FactSet singles out companies active in 35 sectors: from machine vision and quality control manufacturers, to networking semiconductors makers, to producers of motion control and precision motors.

The iSTOXX FactSet Automation & Robotics index is made up of companies such as Cognex Corp., the world’s leading provider of vision sensors and industrial ID readers. FANUC, whose more than 100 robot models paint, weld, stack and mount objects at plants worldwide, is also a member.

Accessing megatrends through listed and transparent passive products

The iSTOXX FactSet Thematic Indices in 2016 became the underlying for four exchange-traded funds (ETFs) managed by BlackRock’s iShares and listed in London, making index-based thematic investing more accessible to all.

In a previous article, we reviewed the iSTOXX® FactSet Ageing Population index.

Please visit Pulse Online in coming weeks, as we’ll review the remaining two thematic indices, covering Digitalization and Breakthrough Healthcare.

A new era of growth looms

For modern-day Luddites, there is an expert word of comfort. A study4 from the Centre for European Economic Research (ZEW) in Mannheim and the University of Utrecht last year analyzed the effect that technological change had on labor demand in Europe between 1999 and 2010.

The study concluded that automation reduces production costs, lowering consumption prices and therefore increasing demand for goods. The higher product sales, in turn, boosts labor demand. Machines did replace humans, but new labor demand and job creation outpaced the substitution effects, the study found.

As it happened in the Industrial Revolution over 200 years ago, the smart automation technology is likely to bring in a new era of growth.

 

Featured indices

iSTOXX® FactSet Automation & Robotics Index

STOXX® Global 1800 Index

Featured products:

iShares Thematic ETFs

1 ‘Who were the Luddites?,’ History, Aug. 7, 2015.
2 ‘UK Economic Outlook,’ PwC, March 2017
3 ‘World Robotics 2016,” IFT, Sep. 29, 2016.
4 “Digitalisation Boosts Labour Demand in Europe,” ZEW, Jul. 27, 2016.

 

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