In the next few decades, chief executives of major global corporations could all become redundant. They will be replaced by robots with highly-developed artificial intelligence, because machines are quicker, more rational and do not get bogged down with silly human emotions. That’s according to Jack Ma, the founder of Chinese internet behemoth Alibaba.
Of course, historically, many predictions about future technological advances have been plain wrong – but there is a real and rapidly-evolving revolution going on in artificial intelligence and robotics. We appear to be at a tipping point, with significant technological advancements creating increasingly sophisticated robots – and the costs of production are now starting to fall. Computing power is growing significantly and algorithms are becoming more sophisticated. Investors are very keen to play the early stages of this this megatrend and invest in the companies that are developing these technologies – but how?
Jobs at risk
It’s not just the C-suite that looks set to see a revolution from the continuing rise of the robots. Automation is expected to disrupt many industries over the coming decades, creating social problems as jobs disappear at the same time as people are living for longer. Remote controlled aircraft will take to the skies, precision robots – even microscopic “nanobots” – may take over basic medical procedures and “agbots” on farms could increase productivity at harvest time by a significant margin. The future, it seems, really does belong to the machines.
The manufacturing industry is particularly vulnerable to automation, but many other jobs are at risk. In the UK, it has been estimated up to 4 million jobs in the private sector could be replaced by automation and artificial intelligence over the next ten years. This figure came from a survey of employers by polling agency YouGov last month. In total, 13% of employers think more than 30% of jobs will become automated over the course of the next 10 years. The Bank of England has even suggested that a “third machine age” could hollow out the UK’s workforce, with administrative, clerical and production tasks most at risk.
The problem with investing in fledgling technologies is there are bound to be winners and losers. Choosing the companies that will win from these trends is a tricky business – and therefore investing in the sector comes with substantial risk. Investors need to be careful to mitigate this. We do not need to blow up a bubble as we did in the dot-com boom of the late 1990s.
UK listed companies such as equipment testing group Intertek, or engineer Renishaw which is active in 3D printing, could be beneficiaries. Property group Segro has also benefitted from the technological revolution shaping the high street, as demand for warehousing for automated (and non-automated) retail providers expands. Amazon and Google have launched their “home assistants” which appears to be their attempts to get in on the home automation market on the ground floor. But getting a good, diversified exposure to these cutting edge technologies is a challenge. That’s why collective investments make sense – and exchange traded funds (ETFs) look like a good way to go to mitigate risk.
ETFs can track almost any type of investment and can hold hundreds or thousands of underlying holdings, meaning that they can offer a level of diversification cheaply. The simplest type is a physical ETF. This will hold the same investments as in the underlying index, as opposed to a synthetic or derivate based ETF which uses complicated financial products to replicate the holdings. The latter may not necessarily hold any of the stocks or bonds it aims to track in the index, so the former should be regarded as generally a less complex way to gain exposure to the underlying companies.
Collectives can play the trend
There are two major ETFs looking at the sector globally – ETF Securities manages the ROBO Global Robotics and Automation ETF and iShares Automation & Robotics ETF. These do not come without risk, as many of the underlying companies in which the funds invests are mid and small-caps, which means the funds themselves can be volatile.
The ETF Securities ETF invests in a basket of shares that is contained in an underlying index that is compiled by Robo Global. It is diversified globally and its largest holding is just 2.06% of the index. Its top five holdings are Japanese robot maker Fanuc, drive maker Yaskawa Electric, material handlings system maker Daifuku, gearbox maker Nabtesco and sensor group Keyence. Looking at the constituents of these funds and indices is a good way for a self-directed investor to identify companies to screen for ideas. However, the benefits of investing in an ETF in this case is clear – it offers a global, diversified play on the sector at relatively low cost.
The social upheavals caused by this robotic megatrend are likely to be significant – even amongst the professional classes. In the City, algorithms are already used in markets and, fairly soon, it is likely that artificial intelligence and machine-learning software will be able to pick equities, set prices and develop hedging strategies. It’s not all doom for employees, though. AI and robotics could also solve some of the gaps in the labour market by taking on the low-paid, dull jobs that are often hard to fill. Robots may even manage to improve the dire productivity levels we have in the UK. But, for investors, this is going to be an exciting sector to follow.
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