Fighting Robots

USA

iShares lists same but different robotics ETF

iShares is listing a robotics ETF in the US, following in the footsteps of iShares UK. The iShares Robotics and Artificial Intelligence ETF (IRBO) will bear the same name as it’s UK counterpart, but have a very different index and investment style (discussed below).

IRBO will track the NYSE FactSet Global Robotics and Artificial Intelligence Index, which allows it to use FactSet’s industry classification system, known as Revere (or “RBICS”). It starts with index agent NYSE picking its 22 favourite sub sectors from RBICS, then looking at companies within them, trawling through their regulatory filings, earning transcripts, and other public documents to see which are involved in robotics and AI.

 

To qualify, companies need to either:

(1) derive 50% of their revenues, or

(2) have at least a 20% market share, or generate $1 billion-plus in revenue from one of the 22 RBICS sub-industries, the prospectus says.

 

We could find no mention of how securities, once selected, are weighted. But we suspect the index will be equally weighted, like the British robotics ETF (RBOT:LN). In a similar manner, we suspect the TER will be 0.40%, again the same as the British product.

 

Analysis – Robotics ETFs have been a winner, but…

As the ETF market crowds, making blockbuster new products is harder than ever. But robotics ETFs have pulled it off.

 

They have been a hit for investors, with index-beating performances. And a hit for ETF providers, attracting billions in inflows. Their success has helped put “thematic” ETFs on the map and encouraged issuers to put out ageing population ETFs, healthcare breakthrough ETFs, fintech ETFs and more, knowing that the thematic approach can and has worked.

 

IRBO is the fourth robotics ETF to be listed in the US, after ROBO Global’s ROBO, Global X’s BOTZ and First Trust’s ROBT. One therefore has to wonder how BlackRock plans to make its product different. Our feeling is that the key differentiator will be cost. The other three robotics ETFs charge between 0.65 and 0.97%. BlackRock’s UK-based robotics ETF charges 0.40% (and, again, we suspect the US edition will charge the same.)

 

… BlackRock’s US version is a closet tech ETF

While the UK fund will likely set the tone on price, we were struck by how different the US and UK versions of the robotics fund were.

 

BlackRock’s US version (IRBO) BlackRock’s UK version (RBOT)
NETFLIX 1.26% GENIUS ELEC 1.16%
TALEND ADR REP 1.26% PTC 1.12%
IROBOT 1.25% DOCUSIGN 1.12%
AVEVA GROUP 1.24% AVEVA GROUP 1.08%
HORTONWORKS 1.23% ASIA OPTICAL 1.06%
ADVANCED MICRO DEVICES 1.22% TERADATA 1.06%
HUBSPOT 1.22% LINE 1.05%
TWITTER 1.22% TABLEAU SOFTWARE CL A 1.05%
PANDORA MEDIA 1.21% AUTODESK 1.04%
FANUC 1.21% ASMEDIA 1.04%
LINE 1.20% SERVICENOW 1.03%
TERADATA 1.19% ANSYS 1.03%
ALTERYX CL A 1.19% CYPRESS SEMICONDUCTOR 1.03%
TABLEAU SOFTWARE CL A 1.18% LITE ON SEMI 1.02%
LATTICE SEMICONDUCTOR 1.18% SPLUNK 1.01%
PROTO LABS 1.17% ASPEN TECHNOLOGY 1.01%
VARONIS SYSTEMS 1.17% DASSAULT SYSTEM 1.01%
SALESFORCE.COM 1.17% OBIC 1.00%
AUTODESK 1.16% NIPPON CERAMIC 1.00%
AMAZON COM 1.16% REGAL BELOIT 1.00%

 

Cracking open the two funds, we found holdings and indexes so different that one has to wonder how they’re both robotics ETFs. The US edition contains the FANGS (Facebook, Amazon, Netflix, Google, Salesforce.com), the Chinese BAT (Baidu, Alibaba, Tencent), as well as other run of the mill tech companies like IBM, Nokia, Twitter, Apple. It’s constituents are so familiarly large cap tech sector that they make IRBO look like a closet tech ETF.
Furthermore, we were a bit unclear how some of these companies are really robotics or AI-related. Salesforce, Facebook and Google are stand out question marks. They are users of AI – yes. But they’re not producers of it. And when you look at the revenue these companies draw from actual robotics and AI, it’s in the low single digits.

 

BlackRock’s UK version, however, is not a closet tech ETF and seems to have a stronger claim to offering a play on the robotics theme. One wonders why the products are built so differently. Whatever the reason, BlackRock seems to be playing the different markets differently.