BOTZ: Robotics And A.I. ETF Performance And Valuation Update – June 2019 – Global X Robotics & Artificial Intelligence Thematic ETF (NASDAQ:BOTZ)

The Global X Robotics & Artificial Intelligence Thematic ETF (NASDAQ:BOTZ) seeks to invest in companies that have direct involvement or that may benefit from thematic trends related to the global adoption of the technology. BOTZ, with an inception date in 2016, has grown to become one of the largest and most liquid of such “theme based” exchange-traded funds and currently has $1.5 billion in total assets. The ETF is up 16% YTD 2019 but has traded with increasing levels of volatility over the past year, with a number of holdings down significantly from their respective 52-week highs. This article highlights the performance and valuation metrics for the underlying stocks in BOTZ, including a discussion on current developments in the group.

BOTZ weekly stock price chart. Source: FinViz.com

BOTZ is a diverse group of 37 equity holdings across sectors and industries that may appear unrelated. Taking a look at the ETF constituents, Intuitive Surgical Inc. (ISRG) manufactures robotic systems for assisted medical procedures and is the largest holding with a 7.7% weighting. There is also Nvidia Corp. (NVDA) whose graphic processing chips are used in multiple applications among its traditional PC markets to now include artificial intelligence computing and autonomous driving systems. NVDA has a 4.2% weighting in BOTZ. A number of companies including Japan’s Fanuc Corp.(OTCPK:FANUY) with a 6.6% weighting, Switzerland’s ABB Ltd. (ABB) 6.5% weighting, and Canada’s ATS Automation (OTCPK:ATSAF) 2.0% weighting produce the electronic and mechanical components such as servos, motors, and robotic arms that are used in automated manufacturing systems for other industries. There is also iRobot Corp. (IRBT) with a 3.3% weighting that together with Yujin Robot Co. (Japan) 0.2% and Hyulim Robot Co. Ltd. (Korea) 0.2% each manufacture and commercialize robotic vacuum cleaners for the consumer markets.

The wide scope of what has been included in the BOTZ ETF across from technology, healthcare, industrials, and even energy sector firms highlights the uniqueness of these “thematic” ETFs in that the equity factors that drive the return performance are sometimes only loosely related. Many of the stocks in BOTZ are up or down in some cases significantly over the past year based on company specific factors and it’s difficult to truly isolate the “robotics and A.I.” equity factor.

With that said, there are some positives to the basket that I appreciated, including exposure to a number of foreign stocks that are not traded on a U.S. exchange or have only a thinly traded OTC security. Among the 37 holdings, 13 equities do not have a corresponding ADR. By my estimate, only about 5 or 7 individual stocks (15%) in BOTZ are truly liquid. Concentration is favorably spread out, with the top 10 holdings representing 60%. In my opinion, the access to the collection of mid- and large-cap foreign stocks otherwise not available for trading or illiquid in the U.S. is the greatest attribute of this ETF.

BOTZ Holdings with no ADR traded in the U.S. Source: author compilation

BOTZ Holdings Performance Data

BOTZ holdings performance data. Source: data YCharts.com/author table

Among 24 holdings with traded shares in the U.S., the average median return is 16.8% YTD, in line with the performance of the ETF this year. Notably, many stocks are still down significantly over the past year. The average stock is down 32% from their respective 52-week highs, effectively in a ‘bear market’.

Veritone Inc. (VERI) with a market cap of $152 million is the smallest constituent of the group but coincidentally also the biggest winner in BOTZ this year, up 97.1%. In Q1, the company beat earnings and revenue estimates which has provided positive momentum for the stock that has trended higher all year. The rebound this year only partially recovers a disastrous 2018 as the stock is still down 68% over the past year.

Among large caps, John Bean Technologies (JBT) is the biggest winner in 2019, up 59.6%. The company has a history dating back to 1884, making it 135 years old and now specializes in food industry processing automation. JBT also has a business segment geared to the transportation industry operating in 25 countries. In April, the company announced an acquisition of Proseal U.K. Ltd. which was well received by the market. Manufacturing automation focused stocks, including JBT, Brooks Automation (BRKS) up 47.7% YTD and ATS Automation up 50.4% YTD, have been among the top performers this year.

Nvidia Corp. has dragged the performance of BOTZ this year, down 46.1% over the past year and underperforming the ETF. The company has been a victim to a global slowdown in the semiconductor industry and also increasing competition in graphics processing. Volatility in some of the biggest names of the ETF, like NVDA, has added to the volatility over the past year.

BOTZ Holdings Performance Data

BOTZ holdings valuation metrics. Source: data YCharts.com/author table

BOTZ has a “growth equity factor tilt” with multiple companies in the group commanding a rich valuation premium while most do not pay a dividend. Among the stocks with data available, I calculate a weighted average price-to-sales ratio of 4.8x and a price to book ratio of 3.3X for the group. The weighted average PE ratio for the ETF is 24x according to Global X.

Conclusion

The expense ratio charged by the fund manager Global X is 0.68% which is on the higher end among passive equity ETFs, but consistent with other niche type exchange-traded funds. The expense ratio is justifiable in consideration of the large exposure to foreign stocks which likely could not be replicated by most retail investors. The reported beta at 1.59 to the S&P 500 index reflects the high volatility of the underlying ETF constituent, although a tech focused benchmark would likely be a better comparison.

BOTZ ETF Key Stats. Source: Global X

Overall, BOTZ is a strong ETF with a good collection of high quality companies that should be leveraged to broader equity themes in global tech. Investors should be aware of foreign exchange currency risk given the number of foreign stocks in the ETF. The ongoing weakness among the semiconductor industry related to weaker demand trends from Asia represent key monitoring points as it relates to the robotics and artificial intelligence theme growth. My view is that this BOTZ will continue to be high risk while the ongoing U.S.-China trade dispute remains unsettled with a potential favorable resolution representing a near-term catalyst for improved sentiment.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.