If you’re like most investors, you’re longing for a return to the “good old days” of 2017. Although the market has yet to slide into dreaded bear territory, you’re not the only one who can’t sleep at night. Market momentum overall has slowed to a near halt, which can make any investor worry: what’s next?
One way to help protect your portfolio against the risk of a downturn (and to finally get that great night’s sleep you’ve been longing for!) is to add robotics, automation, and artificial intelligence to your portfolio.
While robotics, automation, and artificial intelligence—or RAAI—is fascinating in general (who doesn’t get excited when talking about real-life robots?!), what makes it so exciting from an investor's perspective is that its applications are fundamental to the growth of nearly every industry. Logistics. Healthcare. Consumer goods. Retail. Technology. The list goes on. Every one of these industries is banking heavily on robotics and artificial intelligence (AI) to help drive competitive advantage. Even more, RAAI is a massive trend that is already in motion in every region around the globe.
Because that reach is so extensive, the potential for growth is tremendous. For investors, that makes investing in the ROBO Global Robotics and Automation Index an attractive strategy to both capitalize on the potential for growth and to manage risk. In fact, the index is designed specifically to deliver the long-term growth that is so important to any portfolio and to provide attractive risk-adjusted returns.
The structure of an index is always important when investing, but it’s particularly vital when investing in an industry with explosive growth. In an environment of massive expansion, there will always be extreme winners and extreme losers, and attempting to predict the winners from the losers is a risky proposition. We’ve all seen major players fall from the top of the heap to the bottom in what seems like an instant. Consider this list: Netflix vs. BlockBuster; Uber vs. taxis; Google vs. Yahoo; Amazon vs. just about any retailer you can think of! In each case, no one could have predicted the victor until the game was nearly over. Investors who placed their bets on the winners reaped fantastic rewards. And those who bet on the losers? It’s a story no investor wants to have to tell.
To help manage this risk, ROBO Global invests across the entire global value chain of RAAI, carefully selecting industry leaders with all levels of market capitalization, across all major geographic regions. Historically, bigger isn’t always better, especially in a quickly evolving market. During a downturn, either within a sector or across the market as a whole, companies with the largest market cap and expensive valuations often suffer the greatest losses, putting funds that invest primarily or solely in these stocks at considerable risk.
To protect against this risk, 75% of the ROBO Global Robotics & Automation Index is invested in mid-cap and small-cap names. Also, in stark contrast to other robotics-focused strategies, the ROBO Global Robotics & Automation Index is modified equal-weighted—not capitalization-weighted. This weighting provides investors with equally diversified equity exposure, including more exposure to the small-cap and mid-cap companies that may have a higher growth potential—and less exposure to risk.
Adding RAAI to the mix is a great way to help protect your portfolio against the risk of a downturn. Gaining broad exposure to the sector using a research-based approach that is specifically designed to capture consistent growth potential over time may be just the thing to (finally) help you get a good night’s sleep—even when the market is anything but smooth sailing.
By Chris Buck, ROBO Global
To see what’s happening in the world of RAAI and how this strategy is playing out in the real world, see the ROBO Global Q1 Earnings Report: ROBO Index delivers strongest EPS growth since inception.