With companies increasingly seeking to automate their businesses, the field of robotics has the potential to become one of the most important areas of the tech space, according to Stonehage Fleming’s Gerrit Smit. 
Smit, who believes “technology is the new staple of the future”, said there are numerous ways that investors can access the growth area.
While Smit, who heads up the equity management team, does not focus solely on robotics his $1bn Stonehage Fleming Global Best Ideas Equity fund does have a significant allocation to technology.
“We invest in companies that have been around for long, with a successful record and proven technology,” Smit said, adding, “some diversification can lower the risk”.
The field of robotics has grown to become one the largest segment of the technology sector, with applications in virtually every industry.
From an investor’s standpoint, this sub-sector of the technology encompasses all companies involved in the conception, development, design, manufacture, and applications of robots.
“Robots are cost effective, working 24/7,” said Smit. “Because of their efficiency and precision, robots can be a very profitable investment for a company, and therefore for the investor.”
The robotic revolution is expected to transform the global economy over the next few decades, as the field continues to devise better applications, better software, and constant innovation of connected technologies.
The technological advance is on course to lead to an age of automation characterised by autonomous, “intelligent” machines and factories.
Factors contributing to the growth of the sector include the growing demand for automation, as robots develop new capabilities and expand into new areas of industry, business, and private lives. As prices continue to decline, robots will become more affordable and more mainstream.
In addition, the robotic revolution is being driven by major secular trends, including ageing populations, shortage of healthcare workers, and growing global wealth.
The proliferation of e-commerce is another major booster of the trend, through the increasing use of automated warehouses.
As such, spending on robotics and drones will total $115.7bn in 2019, a 17.6 per cent increase on 2018, according to International Data Corporation’s Worldwide Semiannual Robotics and Drones Spending Guide. It is set to reach $210.3bn by 2020.
Smit said the field of robotics is able to accommodate investors with different focuses because of the way that the technology is becoming widespread in a range of industries.
One particular area of interest is in the healthcare sector where robots are starting to be introduced.
“Our preference is for medical,” Smit said. “The economic cycle does not matter as much as what the case may be with industrials.”
One company the team has invested in is the American company Intuitive Surgical, which makes the ‘Da Vinci’ surgical robots.
“The robots cost about $1.5m to $2.5m each,” said Smith. “Doctors need a couple of years of training to learn to use them. And the parts to be discarded after each surgery would probably run to about $1,900.”
The Stonehage Fleming manager explained that a potential competitor would have to deal with doctors that have invested a lot in their training, and medical establishments that have invested no less in the equipment. Getting either to switch to another system would not be easy, he explained.
Another example includes Stryker, the maker of robotic-arm assisted technology, which allows surgeons to perform more precise joint replacement surgery for patients suffering from painful arthritis in the knee or hip.
“There are numerous ways of investing,” Smit said, “especially in companies utilising robotics, such as Amazon and Ocado.”
Smit said his team uses a definition of technology that is rather broad, as it includes companies such as Amazon and PayPal that merely use (not make) technology in their business.
The highly competitive robotic market consists of a few major players, with none dominating the market – except in specific niche areas.
The manager said that investors can invest “indirectly” in robotics, for example though companies utilising robotics, such as Visa, PayPal, or Accenture.
They can also choose to invest directly in the actual makers of technology. One such company is the industrial robot maker Kion or Omron, a self-proclaimed “producer for the production industry”.
Meanwhile, Brooks Automation is the provider of semi-conductor automation and life science systems equipment for various applications and markets. Nvidia robotics research aims to enable the next generation of robots to physically interact with the environment and perform complex tasks alongside humans.
Smit’s final example is Waymo, the autonomous vehicle division of Alphabet, Google’s parent company. The company is a leader in the breakneck race to bring a driverless vehicle to the market.
The Stonehage Fleming Global Best Ideas Equity fund targets long-term growth in capital and income by investing in a focused portfolio of high-quality listed businesses from around the world.
Smit’s team look for sustainable growth among potential holdings in the Stonehage Fleming Global Best Ideas Equity fund, with a particular focus on quality of management, balance sheet strength, cash flow generation, and the ability to grow dividends each year.
Smit aims to manage volatility by ruling out cyclical companies, while also staying away from sectors that are subject to a lot of government control and regulation.
Addressing worries about “late cycle,” Smit said the length of a business cycle has no predictive value.
“It’s all about what actually happens in the economy,” he said. “You don’t know there’s a recession until after you’re in it.”
Performance of fund vs sector since launch
Source: FE Analytics
Since launch in August 2013, the fund has made a total return of 118.30 per cent compared with a gain of 74.8 per cent for the average IA Global peer. It has an ongoing charges figure (OCF) of 0.86 per cent.