Robots have been a part of the human collective consciousness since the 1930s “Flash Gordon” comics, and they became a physical reality in the 1970s, when the first industrial robots were used in Japanese automobile manufacturing. But today’s world may present the most enticing investment opportunities yet. BlackRock recently identified robots as one of its core megatrends, “powerful, transformative forces that could change the global economy, business and society.”
For a clearer look at the near- and long-term outlook for robotics, we spoke with Jay Jacobs, managing director and head of U.S. Thematic and Active Equity ETFs at BlackRock. He shares what may be in store for robotics and how advisors can capture this compelling investment opportunity in their portfolios. Here are edited excerpts from that interview:
Robotics have been around since the 1970s. What makes now a compelling entry point?
The underlying technology has continued to improve, translating into rising demand and proliferating use cases. While the auto industry was historically the largest consumer of robots, non-automotive manufacturers now represent the majority of sales.
Yet, even with smarter, more sophisticated and nimbler robots than ever before, we are still in the early innings of robotics adoption. On average, there are 126 robots per 10,000 employees in manufacturing — nearly double the number five years ago, but still far from ubiquitous adoption.
Beyond manufacturing, we are seeing technology advance to the point where robots can be used for all kinds of specific and delicate tasks, from picking vegetables to producing semiconductors to performing complex surgeries. To put that in perspective, the surgical robots market is projected to exceed $25 billion by 2031 from $6 billion today. Increased funding for research and development from governments, universities and private organizations; rapid growth in robotics technology; and improved surgical outcomes, particularly in orthopedics, neurology and urology, are key factors fueling growth. The robotics theme has the potential to massively disrupt health care and other industries alike.
How does the current macroeconomic environment impact the adoption of robotics?
The macroeconomic environment, combined with technological advancements, are creating a powerful moment for robotics. We are being pushed to produce more goods in the U.S. in cost-effective ways alongside historic reshoring and wage inflation. Robot sales had their strongest year ever in 2021, up 28% from 2020. That was before inflation and labor shortages accelerated in 2022, challenges that are likely to only drive robotics adoption further.
Hourly earnings in the U.S. are up 11% since the start of the pandemic, and labor shortages are leading to challenges for many firms in finding qualified workers. This makes the upfront investment in automation far more attractive. Automation, from production to packaging, is combating supply chain disruption and inflation, allowing employees to move faster and focus on higher-value tasks.
On top of that, seismic growth in e-commerce has further stressed supply chains. Robotics will also play a significant role in logistics innovation. Strained warehouse operations, due to increasing consumer demand, necessitate their use.
Where will the next generation of robots be most impactful?
As robotics and artificial intelligence advance together, more complex tasks can be automated. There are two key areas where we see the next generation of robotics driving change: logistics and health care.
The competition for warehouse and fulfillment labor has become incredibly fierce, driven by sustained growth in e-commerce. The long-term implications of a high reliance on labor are clear: Automation in warehousing is imperative to controlling costs, improving efficiency and scaling to meet growing demand. In response, companies are investing in logistics robots and are continuously looking for new ways to automate tasks.
Robots in the medical field are transforming how surgeries are performed, streamlining supply delivery and disinfection, and enabling providers to focus on engaging and caring for patients. While countless businesses were shuttered during the COVID-19 pandemic, robotics companies found themselves in a unique position: Many saw a surge in orders. Robots were deployed as first responders all over the world to help with response efforts. In U.S. hospitals, Diligent Robotics tested its robot, Moxi, in doing commercial mobile manipulation, distributing supplies to patient rooms, delivering lab samples and distributing personal protective equipment (PPE) — all completely autonomously. Robots are redefining health care.
What other technologies are needed to make robots successful?
There is a clear convergence of robotics and artificial intelligence, or AI. The integration of the two have the potential to increase productivity and elevate human-like cognitive abilities. Simply put, AI is an accelerant. Think of it this way: robots serve as the body, and AI acts as the mind. Robots digest incredible amounts of information, pulling it all in through sensors and uploading it to the cloud to be processed with AI. Spatial awareness is key, so they can operate alongside humans in more confined areas while being aware of their surroundings.
On the other hand, battery technology is a limiter. Robots have become increasingly untethered and mobile, enabling them to roam hotel floors and deliver packages to your doorstep. Such robot designs are powered by batteries and have constrained potential because the batteries often occupy at least 20% of available space inside of a robot, or account for a similar proportion of the robot’s weight. New technology, such as biomorphic batteries, could provide 72 times more energy for such robots.
How can advisors incorporate robotics into their portfolios?
While robotics presents a compelling long-term theme, our analysis shows that the average U.S. wealth portfolio has negligible exposure to pure-play robotics and AI companies, at only 1.3%. And many investors struggle to identify the investments that are positioned to benefit from the rise of this transformational technology. Enter thematic ETFs, which provide targeted exposure to a theme’s value chain. A fund like the iShares Robotics and Artificial Intelligence Multisector ETF (ticker: IRBO) provides investors access to companies around the world leading in areas like industrial robotics, AI software, surgical robots and beyond.
While there are many ways for investors to add themes into their portfolios, we share two approaches: core-satellite and sector replacement.
With a core-satellite strategy, the current portfolio serves as the core, a portion of which is subtracted and used to fund a handful of themes (i.e., the satellite). We believe thematic exchange-traded funds are well suited to act as satellite investments for two reasons. First, we expect them to outperform broader equity markets over the medium- to long-term because they capture long-term structural trends. Second, thematic ETFs invest in an unconstrained manner across geographic areas, sectors and market caps, so there is little overlap with traditional core equity market indices.
Alternatively, investors could utilize a sector replacement or enhancement strategy, by reducing exposure to the information technology or industrials sectors and investing the proceeds in a robotics and artificial intelligence thematic ETF. This allows the portfolio’s equity characteristics to stay relatively constant, while capturing more targeted exposure to durable pockets of growth.
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