By AXA World Funds Framlington Robotech Fund lead manager Tom Riley.
Today robots are rapidly changing multiple aspects of how we live and work. Advances in technology mean that robots are now not only capable of performing highly sophisticated and delicate tasks but are also able to work safely alongside people, helping to drive efficiency and boost productivity.
Significantly, while we are still in the early stages of this disruptive trend, its long-term potential is evident to a growing number of equity investors. And, with an opportunity set that spans the market cap spectrum – from small to large cap, robotics is increasingly being recognised as a viable investment and potentially superior growth area of the market.
Many mega-cap companies have been investing heavily in robotics and automation. In 2012 Amazon purchased the privately-owned warehouse robotics company Kiva, in a bid to materially improve its delivery speed.
Elsewhere in the small-cap space in 2015, Teradyne, a leading supplier of test equipment for the semiconductor market spent $285m acquiring Universal Robots, a Danish company that is one of the top providers of cobots - robots that work alongside people.
Given the current pace of expansion, it is expected that the global robotics market will grow by some 10 to 15% a year, until 2025.1
It has also been estimated that bringing manufacturing up-to-date with the latest robotics-related technology could result in cost-saving opportunities of more than US$500bn.2
There are a number of factors bolstering the sector’s outlook. Robots have become more affordable and easier to programme, offering more precision, reliability and efficiency meaning that they are an increasingly attractive option for all manner of sectors.
In addition, working-age populations across many countries, including for example, China and Japan continue to shrink, a trend that is arguably turning robots and automation into a necessity. Ultimately robotics is becoming increasingly ubiquitous and we believe will help revolutionise industries worldwide.
Within the healthcare sector, the market for robotic surgery is on the rise. This technology offers many advantages for both patients and hospitals, including more precise surgery, which in turn can lead to a lower risk of infection and faster recovery times.
Intuitive Surgical (ISRG), a $41.6bn company specialising in the design, manufacturing, and marketing of the da Vinci surgical robotic systems appears to be enjoying something of a dominant position in the sector and over the past three years the California based firm, has enjoyed annual average sales growth of some 12.5%.3
Da Vinci machines have already operated on millions of patients worldwide. We believe this figure is potentially set to grow even further going forward as adoption of robotic surgery continues to gain traction and the range of procedures for which such systems can be applied broadens.4
The robotics industry has been making inroads into the transportation sector for some time. But robots no longer just help to manufacture cars, they are increasingly becoming more vocal backseat drivers and, as it has been widely documented, will soon move into the driver’s seat via the increased usage of vision and sensor systems. Teams at Waymo, Alphabet's self-driving car division, drive more than 25,000 autonomous miles each week, largely on complex city streets in the US. The fleet has self-driven more than four million miles so far and that’s on top of the one billion simulated miles driven in 2016 alone. And, with each mile, the firm collects more data and experience, enabling it to continue to learn and improve the driving process.5
We expect that the adoption of advanced driver assistance systems (ADAS) in automobiles will continue to rise and become more capable, helping cars become more intelligent - and one business involved in this area which has caught our attention is Infineon. The German firm is a leader in supplying semiconductors and currently its products are sold to a number of major automobile manufacturers.
The onset of robotics is also likely to help many factories to drive further efficiency and productivity. One particular group, at the smaller end of the market cap scale is vision technologies firm Cognex.
The $10.7bn Nasdaq-listed corporation, creates vision systems used in the automation of manufacturing and logistics facilities.6
We invested in the firm in 2015 as we started to see more sophisticated vision systems become increasingly incorporated into the manufacturing and assembly processes. Cognex’s vision technology boasts a wide range of applications - from guiding robots manipulating car parts, to ensuring safety seals on pharmaceutical products are present and for the past three years it has seen annualised average sales growth of 14.5%. We believe Cognex, which is making inroads into new sectors, currently boasts an encouraging pipeline.7
Overall, given the pace at which the industry is expanding, and is expected to do so in the future, we anticipate that the robotic revolution will continue to unfold at an accelerated rate over the coming decades.
AXA Investment Managers (AXA IM) is an active, long-term, global, multi-asset investor. We work with clients today to provide the solutions they need to help build a better tomorrow for their investments, while creating a positive change for the world in which we all live. With approximately €732 billion in assets under management as at end of September 2017, AXA IM employs over 2,450 employees around the world and operates out of 29 offices across 21 countries. AXA IM is part of the AXA Group, a world leader in financial protection and wealth management.
Find out more at axa-im.com/en/robotech
1International Federation of Robotics - World Robotics Report 2015 / This figure is a forecast of the total growth of the robotics market and does not constitute a guide to the performance of the Framlington Robotech strategy (https://www.axa-im.com/robotech)
2 Goldman Sachs Equity Research – “Factory of the Future – Beyond the Assembly Line” / April 2016
3 FactSet - as of 29 September 2017
4 Financial Times (https://www.ft.com/content/2888f1d0-9a05-11e6-8f9b-70e3cabccfae)
5 WAYMO: (https://waymo.com/ontheroad/)
6 FactSet- as of 18 December 2017
7 FactSet- as of 29 September 2017
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