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July 20, 2017

The Robotic Revolution is at a Tipping Point; MRP is Adding "Long Robotics & Automation" as a New Theme

First, they came for bank teller jobs. Then, they began driving trucks. Soon after, they were performing legal research and even designing sophisticated life-saving drugs. The Robotic Revolution has reached a tipping point, and is set to accelerate now that advances in artificial intelligence allows robots to do a lot more.

In our  May 2nd, 2017 DIBs report, we noted that robots are replacing humans across a multitude of industrial activities, including agriculture, energy, services, transportation, storage, medicine, and of course, manufacturing. Here are more developments since then.

Robots Making Clothes: 95 percent of apparel that’s sold in the U.S. is made elsewhere. Fashion retailers are discovering that a robotics-run supply chain enables them to localize production near their home bases, shortening shipping windows. The “Sewbot” technology, developed by Softwear Automation, aims to automate the entire clothes-making process by using camera-equipped sewing machines that trace pre-programmed patterns, similar to the way self-driving cars follow maps. In another example, Amazon has filed a patent to develop a “stitch on demand” machine that would automatically make clothes after they have been ordered. And, last year, Adidas opened Speedfactory in Atlanta, a robotics-run manufacturing plant that can produce and ship sneakers on demand in 48 hours.

Robots in Shops: Self-checkouts are becoming a larger percentage of total registers at stores like Wal-Mart and Home Depot. Additionally, Wal-Mart has started using the Cash360 machine which counts cash much faster than a human can, and then digitally deposits that money at a bank. Wal-Mart no longer has to pay employees to perform that function, or hire armored cars to transport that cash to the bank. Furthermore, Cash360 uses software to predict how much cash is needed on a given day. Almost all of Wal-Mart's 4,700 U.S. stores now have a Cash360 machine. Retailers are also using robotics in the form of machine learning and artificial intelligence to improve the customer experience.

Robots in Chinese Factories: In the past, surging labor costs have forced Chinese factories to move operations to cheaper-wage countries. But lately, many factories are opting to invest in robots rather than do offshoring. About 8 percent of firms now have robots and two-fifths are automated. Manufacturing automation will drive China’s robotics spending to $59B by 2020, according to the IDC.

Robots Making Cars: A Ford factory in Hangzhou, China, has 650 robots. General Motors’ factory in Shanghai has 530 robots that make Cadillacs with all-aluminum bodies. In Chennai, India, 400 robots have replaced humans in large parts of the Hyundai car plant. Meanwhile, Volkswagen wants to charge your electric car with a robot.

Robots on the Trading Floor: At UBS, a robotic program uses AI to scan clients’ emails for trade allocation instructions, and then processes these and executes the transfers. Thus, a task that would normally take 45 minutes of an employee’s time is completed in just about two minutes. Another system uses machine learning to develop new strategies for trading volatility on behalf of clients.

Robots in the Home: Household robots are a booming business. These days, they can handle chores like mopping the floor, cleaning your grill, and even cutting your grass. About one in 25 American households has a consumer robot of some kind, and that number is expected to grow to one in 10 by 2020. A study predicts that the home and office robotics market will hit $1.5 billion by 2019 -- double what it was just three years ago.

THEME LAUNCH: Technology stocks have performed extremely well over the past year, but companies in the robotics and automation segment have done even better. As the chart below shows, the Robo Global Robotics & Automation ETF (ROBO) has started to outperform the Technology Select Sector SPDR ETF (XLK). 

MRP believes that the permeation of robots into almost every sector of the economy represents a transformational change. The money spent globally on robots in 2015 was $71 billion. By 2019, spending is expected to total $135 billion. And worldwide shipments of industrial robots will triple by 2025. These factors compel us to add ROBOTIC REVOLUTION as a Long theme. Investors can gain exposure to this theme via the Robo Global Robotics & Automation ETF (ROBO).

Robotics & Automation vs Technology Sector vs S&P 500