Tuesday 07 February 2017 4:20 am

Investing in automation: If robots are coming for your job, how can you make money out of it?

"Robots are coming to take our jobs,” scream the headlines. The debate around automation has become alarmingly dichotomous – either your job requires skills which are resistant to computers and machines, or you’re destined for the scrap heap. The reality is probably more nuanced.

According to the McKinsey Global Institute, it is unlikely that specific jobs will be made redundant over the next decade, but parts of all jobs will become automated – and not just in industries where human labour is physical, and the processes are repetitive. Investors should take note. Robotics and automation should be seen as a theme which will impact a wide range of sectors, from logistics and agriculture to healthcare and insurance by reducing human error and boosting the low productivity which has weighed on growth since the financial crisis.

Working out which companies are making the best technological improvements could be key to generating high returns over a long period. So which are the biggest trends and how can investors get exposure?

Consumer robotics

Driverless cars have certainly captured the public’s imagination when it comes to automation in consumer products and services, and a number of firms are scrambling to create driverless systems and sensors.

Bosch, Ford, Nissan, BMW and Tesla are currently working on autonomous vehicle systems, but it is Alphabet’s driverless unit Waymo which is racing ahead. Data released last week by the State of California Department of Motor Vehicles, a regulator in the state where much driverless testing takes place, show that Waymo clocked up more than 30 times the number of driverless miles than its competitors combined, and had the fewest instances of intervention by human drivers.

Autonomous trucks may arrive even sooner, partly because motorway driving is considered easier to automate. FedEx has announced that it is investing in such vehicles, while drinks firm Anheuser Busch teamed up with Uber-owned startup Otto to successfully deliver a shipment of Budweiser in October. However, the potential reduction in labour costs may only be seen when drivers can be completely removed from trucks – which is some way off, and regulation may prove a huge barrier to profitability.

It may be more sensible to invest in firms developing vision recognition technology. “A drone, a self-driving car – any smart robot needs to recognise its environment in order to interact with it,” says Jonathan Cohen, managing partner at the RoboCap fund, which invests in robotics businesses. He picks out Keyence, a Japanese firm, or US in-sight vision specialist Cognex, as two companies operating in the space.

Big and small

Industrial robotics is another fertile domain. The global market will be $24bn by 2025, according to the Boston Consulting Group, with logistics, manufacturing processes and 3D printing helping to cut costs and improve efficiency. The stocks tend to be larger, but still enjoy high margins, such as Siemens, Fanuc and ABB. All are holdings in the Pictet Robotics fund.

The profit made by Digital Factory – a unit at Siemens which integrates hardware and software – soared by 60 per cent to €668m in the three months to 31 December, helping the titan to raise its expectation for basic earnings per share from €6.80-7.20 to €7.20-7.70 for 2017.

Of course, the size of the companies matters as much as the size of the robots. The ROBO Global Robotics and Automation GO UCITS exchange-traded fund, which is offered by ETF Securities, “has a key focus on small and mid-cap companies where the high growth opportunities are,” says Howie Li. “If you hold companies like Alphabet and Apple, for example, your exposure to robotics and automation won’t be as direct,” he says. Close to 50 per cent of the RoboCap fund’s holdings are mid-cap stocks. “For us, the minimum market cap is $200m so the stock is liquid enough,” says Cohen.