If you think a colleague of yours in the not-too-distant future could be a robot, then the first global robotics ETF could be for you.
In an ETF market now so vast as to include the Global X Guru Holdings Index Fund, which imitates other famous investors' picks, or the Nashville ETF, for those who like country music or are enthusiastic about Corrections Corp. of America, there seems to be little left that is unthought of.
But the wholesome and unusual origins of the Robo-Stox Global Robotics and Automation Index ETF (ROBO) testify to both the niche-friendliness of ETFs and to the space the finance industry will occasionally still make for non-finance professionals.
Frank Tobe, the firm’s co-founder, just doesn’t sound like your average finance exec, inserting words like “robust” and “tool” into every other sentence.
In an interview with ThinkAdvisor, the retired owner of a computer services business spoke in plain English but also with an enthusiasm for technological innovation that doubtless was communicated to the finance types that eventually got ahold of him to develop a robotics index and launch a fund.
Upon retiring after more than 25 years in computers, managing data for the Democratic National Committee among others, Tobe said he was looking for the next big thing.
“When I was in the computer business, I started at a time when we had a mainframe, a very big mainframe. There were lots of disc drives, lots of employees. Then along came the minicomputer that could do the same thing we could do but cheaper. Then along came standalone word processors. Then along came the digital era,” he says.
“When that occurred, everything changed, he continues. “All of a sudden we were in the software business rather than the hardware business,” a transition that entailed increasing levels of automation, he observed.
Tobe identified robotics as the wave of the future.
“I saw that there’s going to be a boom over the years in replacing the lowest kind of labor — the kind that gets hurt or gets bored … Sure enough, that’s what’s happening all over the world,” he says.
Wanting to put some of his retirement money to work in a basket of robotics stocks, he first phoned Merrill Lynch.
“They said they only have two [robotics stocks],” he says. After trying other sources, including Bloomberg, who had a list but one that seemed geared more to simple automation rather than cutting-edge robotics, Tobe decided to make his own list.
He examined the field, from established industrial manufactuers, like GM, to pre-IPO startup activities such as UC Berkeley exoskeleton research whose commercial applications led to Ekso Bionics, which has developed a wearable robot that can help paraplegics get out of wheelchairs.
Tobe started publishing The Robot Report to track these developments. When the market crashed in 2007-'08, he noticed that these stocks also fell but then recovered at a faster rate than other industries.
Eventually, investors following his thoughts on The Robot Report approached him about creating an index, licensing it and launching an ETF through Exchange-Traded Concepts, purveyor of “ETF in a box” solutions to anyone with an idea to package.
Now Tobe can collect license fees, advise the fund and, finally, put his own money in the kind of investment he was looking for. The fund has increased 9% in value since its launch three months ago.
The ROBO portfolio is divided into bellwether — stocks of robotics companies — and non-bellwether stocks, in which robotics plays an important role. The 18 bellwether stocks each represent 2.22% of the portfolio and about 40% collectively, while the 60 non-bellwether stocks each make up 1.02% of the portfolio, or about 60% of the portfolio in total.
“We played around with different weightings and back-tested them and the result was this current weighting of 60-40,” Tobe says.
The result is far from a collection of all things robotic, however.
“We’re very selective,” Tobe says. “We have a $200 million market-cap limitation, and companies need to have liquidity, and they have to have a significant amount of revenue attributable to robotic operations.” That excludes companies he keeps a close watch on, such as microcap Ekso Bionics, for example.
The robotics enthusiast turned investment analyst waxes about industrial and service-industry trends, rattling off statistics such as 80% of packaged sandwiches in Europe at roadside stands are robot-manufactured, or that 60% of European lettuce, most of which comes from Spain, is robot-handled.
He’s also monitoring pre-IPO companies poised to automate such processes in the U.S., and notes with satisfaction the changing processes in his chosen field.
“The old kinds of robots did not have eyes. If it’s going to pick up something, it’s got to be in a very specific place” — something that vision systems and sensors have changed, he says.
Asked which company in his portfolio he is currently most enthusiastic about, Tobe points to Mazor:
“It’s an Israeli company that is involved in spine procedures and robotic guidance and robotic surgical procedures. They’re really hot,” he says.
While Tobe admires the firm’s technical prowess in orthopedic procedures, he’s got deep personal knowledge of the difference Mazor has made through its robotic innovation, having had three back operations in his life: in 1984, 1994 and 2012.
“When I first did it, they entered with a big slice down my back,” he recalls. “It took me about a month and a half before I could walk normally and could go to physical therapy. The second surgery was pretty much the same.
“The third [which employed Mazor’s robotic-guided procedure] went through the belly button, so there is no scar. I was off everything within 8 days and went to Europe on a boat and I was a happy camper,” he says.
Tobe says the company’s marketing team has taken the minimally invasive product globally.
“That’s all my surgeon can talk about,” he adds.
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