Robotics and Automation ETFs Programmed for Further Gains

Protectionist policies and a full labor market underpin industry demand

The Terminator would be worried – a rise of the machines coincides perfectly with the rise of protectionist policies. As multinational companies try to avoid getting caught in the crossfire of trade tariffs, they are likely to utilize robotics and automation for manufacturing products, rather than getting them made abroad. Not only do these innovative technologies shield revenues from political risk, but they also simplify a company's supply chain and help expedite delivery times.

"As there are more signs of de-globalization, protectionism, and nationalism – not just in the United States – multinationals are seriously rethinking how to move down a new path and reconfigure their operations globally. We are in the first inning, but we are game on," said Joseph Quinlan, an analyst at Bank of America, per Barron's.

Businesses that operate in this space should also benefit from a tight jobs market and growing skills shortage as companies look to technologies such as advanced manufacturing, 3D printing, and artificial intelligence to make up the labor shortfall. According to market data and research site Statista, global revenues from robotic process automation are expected to rise from $1.6 billion in 2019 to over $3 billion in 2022.

Those who follow this exciting technology should consider trading these three exchange-traded funds (ETFs) that provide exposure to companies at the forefront of the robotics and automation industry. Let's look more closely at each fund and go over several trading strategies.

Robo Global Robotics and Automation Index ETF (ROBO)

Launched in 2013, the Robo Global Robotics and Automation Index ETF (ROBO) aims to provide similar investment results to the ROBO Global Robotics and Automation Index. The benchmark tracks global equities that derive a portion of their revenues from robotics and automation products, processes, services, or devices. ROBO tilts toward the industrials and technology sectors, with respective allocations of 54.51% and 33.81%. An average spread of 0.09% and daily turnover of roughly 250,000 shares keep trading costs low. The fund's 0.95% management fee sits above the 0.66% category average but is competitive for a thematic fund. As of June 19, 2019, ROBO has a large asset base of $1.25 billion, offers a small 0.33% dividend yield, and is trading up 17.14% year to date (YTD).

ROBO shares rallied sharply between late December and April to come within 1.6% of their 52-week high at $42.82 set on Sept. 21, 2018. Like the broader market, the fund fell away in May but has staged a recovery this month. The price found support at the 200-day simple moving average (SMA) in Tuesday's trading session that may lead to further upside. Traders who take a long position should set a take-profit order near the YTD high at $42.13. Think about cutting losses if the ETF closes beneath the 200-day SMA.

Chart depicting the share price of the Robo Global Robotics and Automation Index ETF (ROBO)

Global X Robotics & Artificial Intelligence ETF (BOTZ)

With assets under management (AUM) of $1.45 billion, the Global X Robotics & Artificial Intelligence ETF (BOTZ) seeks to track the performance of the Indxx Global Robotics & Artificial Intelligence Thematic Index. The ETF, formed in 2016, invests in companies that develop and produce robots or artificial intelligence in applications, such as drones, health care robots, and predictive analytics software. BOTZ targets Japanese robotics companies, allocating roughly half its portfolio to the country. Trading costs come in slightly lower than ROBO, with an average spread of 0.05% and over 700,000 shares changing hands daily. The fund has an expense ratio of 0.68%, issues a 1.28% dividend yield, and is up almost 20% on the year as of June 19, 2019.

A broad inverse head and shoulders pattern on the ETF's chart suggests that a significant bottom is in place. Despite a "golden cross" buy signal appearing in April, the fund has failed so far to continue its upward momentum. Buying interest crept back into BOTZ Tuesday after a minor pullback to the 200-day SMA. A recent bullish moving average convergence divergence (MACD) cross above the signal line confirms rising prices over the past two weeks. Those who buy at these levels should anticipate a move to the April swing high at $21.99. Set a stop-loss order under the low from Monday, June 14, at $19.51 to close out losing trades.

Chart depicting the share price of the Global X Robotics & Artificial Intelligence ETF (BOTZ)

iShares Robotics and Artificial Intelligence ETF (IRBO)

The iShares Robotics and Artificial Intelligence ETF (IRBO), created in June 2018, attempts to follow the performance of the NYSE FactSet Global Robotics and Artificial Intelligence Index. To be included in the underlying index, a prospective company must either derive at least 50% of its revenue, have a 20% market share, or generate $1 billion in annual revenue from one of the 22 RBICS sub-industries with exposure to the robotics and artificial intelligence space. The $31.85 million fund holds a large basket of 90 stocks, with no stock commanding more than a 2.5% allocation, helping to diversify risk across the industry. IRBO's average spread of 0.28% is a little wider than the first two funds discussed, while its 0.47% management fee is lower. Performance wise, the ETF has returned 19.09% YTD as of June 19, 2019.

IRBO shares added the bulk of their YTD gain in the first quarter but have failed to gain traction since. The price declined below the 200-day SMA in May, although it quickly bounced back above the closely watched indicator in early June. Yesterday's 2.06% gain indicates that the price may want to run higher and test resistance at $26. Traders who enter here should consider positioning a stop under Monday's session low at $23.59 to protect trading capital.

Chart depicting the share price of the iShares Robotics and Artificial Intelligence ETF (IRBO)
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