Automation

Investing in automation and robotics - How are companies capitalizing on robotics – and what does this mean for investors?

What is Automation?

Automation is the creation and application of technologies to improve or optimize processes. Automation began life on the factory floor, as automotive companies aimed to improve manufacturing techniques but it has since evolved to influence multiple aspects of how we live and work.

What are the potential benefits of investing in Automation?

Automation may help companies:

  • Increase efficiency and lower costs
  • Improve reliability and consistency
  • Perform highly sophisticated and delicate tasks
  • Work safely alongside human workers
  • Keep pace with customers’ increasingly on-demand preferences

While we are still in the early stages of this disruptive trend, its long-term potential seems evident to a growing number of equity investors. And, with an opportunity set across both larger and smaller companies, robotics is increasingly being recognized as a viable investment and potentially superior growth area of the market. 

While we are still in the early stages of this disruptive trend, its long-term potential seems evident to a growing number of equity investors. And, with an opportunity set across both larger and smaller companies, robotics is increasingly being recognized as a viable investment and potentially superior growth area of the market. 


The warehouse automation market 
is expected to grow at circa 10% p.a. in the coming years.

Source: BofaA Merill lynch - Fancy forklifts, smart warehouses (July 2018)
 

The automation sector has several investable areas. These include:

Industrial Automation: Technologies helping companies increase precision, reliability and efficiency across industries.

Transport: Technological advances focusing on vehicle safety and the pathway towards autonomous vehicles. But there are additional opportunities outside of the car industry in areas such as agriculture and mining.

Healthcare: Companies involved in robotic surgery, assistance and remote healthcare.

Technology Enablers: The intelligence that powers and controls robotics. These firms provide the sensors, connectivity and intelligence used to gather and analyse information

Why invest in automation now?

The demand for industrial robots has accelerated in recent years due to the ongoing trend towards automation and innovative technological advancements. Advances in technology have made robots capable of performing highly sophisticated and delicate work as well as working alongside humans to drive productivity and efficiency.

We believe this is just the beginning of a multi-decade theme:

 

Worldwide annual supply of industrial robots


*Forecast. Source: AXA IM.  Chart: IFR World Robotics 2018.  Performance results of the past are not a reliable indicator for any future returns or trends. The growth of the global robotics market is not a reliable indicator of performance of the securities/companies which will be selected.

Robotics and automation technologies are also being applied more extensively across more industries than ever. In 2018, shipments of robots increased to every industry outside of the automotive industry:

+60% - To food and consumer goods companies
+50% - To semiconductor and electronics plants
+13% - To metals producers

Source: Association for Advancing Automation, via World Economic Forum, March 2019.

Robots are also becoming more affordable while labour cost is increasing, and the working population is shrinking in many countries.

Labour cost vs robot prices 

Source: Economist Intelligence Unit/IMB/IAB/IRF/SSA/McKinsey 2017
Example shown is for average robot prices and labour compension in US Manufacturing (1990 = 0%)

All investment involves risk and capital is not guaranteed. Such investment strategies are invested in financial markets and use techniques and instruments which are subject to some levels of variations, which may result in gains or losses. Additional risks may include Counterparty Risk; Credit Risk; or risks associated with the impact of any techniques such as derivatives or leverage.

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* Source: US Department of Commerce, latest data available as of March 2018
^ Source: Citi Research, Citi GPS “Technology at work v3.0”, August 2017
% Source: IFR World Robotics Report 2017, latest available data as of March 2018
& Source: Financier Worldwide, “Investing in the clean technology revolution”, January 2016
# Source: UN, correct as at March 2018