By Travis Briggs, CEO, ROBO Global
Following companies that disrupt the status quo is fascinating. In nearly every industry, innovative companies are now using the power of robotics and AI to drive change that was unimaginable just a decade ago. Their technologies, products, and solutions are turning the competitive landscape upside down and creating new market leaders more quickly than ever before. These companies are bona fide disruptors that we believe create a smart, long-term investment opportunity that should be capitalized on in the early stages. But while they hold a high potential for rapid growth, they are often missed by investors who are distracted by today’s short-term market swings. This combination is creating a prime opportunity for investors who understand this new reality and position their portfolios for long-term growth.
As this new tipping point for technology emerges, the laws of physics will ultimately defy Moore’s Law, and under the new law of exponential growth that replaces it, innovation will accelerate at a previously unattainable pace. The resulting technological arms race is already creating a level of disruption that’s causing companies around the world to rethink how to survive and thrive. There may have never been a better time for investors to position for the growth ahead. The key is to recognize this massive shift and learn how to approach it from an investor’s perspective.
You can’t time the market, especially when it comes to disruptors.
An unfortunate but common mistake when investing in emerging technology is attempting to time the market. While some disruptive securities may seem like overnight successes, the reality is that ‘big-bang disruptors’ are few and far between. In most cases, the time between invention and mass adoption is difficult to predict. Once a new technology reaches critical mass, however, the market takes notice quickly and acts swiftly. One notable example is Intuitive Surgical (ISRG), makers of the Da Vinci surgical robot. From 2005 through 2015, ISRG returned a respectable 16% annualized return, which was 6% higher per year than the S&P Healthcare Index. However, from 2016 through 2019 year-to-date, ISRG has delivered an astounding 34.8% annualized return, compared to 8.4% for the S&P Healthcare Index. This unpredictable timeline is one we have seen time and time again, and it highlights why we see a long-term buy-and-hold strategy as the optimal—if not the only—prudent way to benefit from the growth curve of emerging technology stocks.
Market volatility does not always represent risk.
While market volatility can punish short-term investors, it does not serve as an adequate measure of risk for long-term investors. In fact, those who have the foresight to grasp the future and resist the urge to sell in volatile markets are more often rewarded for their conviction and persistence. Most investors know this intellectually, but emotions seem to take the lead in uncertain markets.
Targeting the industries that are leading disruption is key.
When Amazon disrupted retail with its Kiva robots (now Amazon Robotics), it was seen as unique. Since then, companies have used AI and robotics to create equally massive change in myriad other industries:
Diversification is mandatory.
While every one of these disruptive technologies is compelling, there are many others waiting in the wings—which is why trying to predict the winners is a fool’s game. That’s precisely why the ROBO Global indices are designed with diversification as a top priority. The ROBO Global Robotics & Automation Index (ROBO) includes more than 80 stocks across 12 subsectors in 14 countries, while the ROBO Global Healthcare Technology & Innovation Index (HTEC) includes more than 80 stocks across 9 subsectors. Both portfolios have been built to minimize individual stock risk and to focus on the entire value chain of growth in RAAI (robotics, automation, and AI) and healthcare. This approach of investing in many companies with great promise of delivering disruption reinforces the potential for long-term growth.
At ROBO Global, we see disruptive technology as one of the most inefficient areas in the market, and as an area where diversification and a longer-term investment horizon can enable investors to harvest this outsized return potential. By taking the time to research and validate the theme and to understand the exposure within each of our strategies, we believe investors can use disruptive technologies to their advantage and to the benefit of their own portfolios.
[1] According to the Association of American Medical Colleges, the US will be short 47,000-122,000 physicians by 2032.
[2] The US Census Bureau projects the US population to grow by 10% by 2032, and that the number of people over age 65 will increase by 48%.