IRBO: Long-Term Makes Sense But Short-Term Momentum Not Good

We're fascinated with robots because they are reflections of ourselves. - Ken Goldberg.

AI mania is unquestionably fizzling out. The narrative only became centered largely around Nvidia, but now that momentum has broken there, so too has the narrative at least in the short term. Having said that, I think robotics and AI from a very long-term perspective makes sense. It's more a question of getting the right price and timing it right as opposed to just listening to stories about how all our lives will be changed.

The iShares Robotics and Artificial Intelligence Multisector ETF (NYSEARCA:IRBO) is an exchange-traded fund that offers investors exposure to companies at the forefront of robotics and AI innovation across the globe. Launched by BlackRock, a global investment management corporation, on June 26, 2018, IRBO aims to track the investment results of the NYSE FactSet Global Robotics and Artificial Intelligence Index. This index comprises developed and emerging market companies that could significantly benefit from long-term growth and innovation in robotics technologies and AI.

Understanding the ETF's Investment Premise

IRBO is a thematic investment vehicle that focuses on the key drivers of the fourth industrial revolution. The fund invests in companies involved in developing and deploying robotics and AI technologies, two of the most disruptive trends reshaping the global economy and society. The mass adoption of these technologies is anticipated to trigger a new wave of industrialization, following the paths of steam, mass production, and electronics.

According to International Data Corporation, global spending on AI alone is expected to double between 2022 and 2026, reaching $900 billion. As these technologies continue to evolve and permeate various sectors, investing in IRBO presents a strategic opportunity to harness this technological growth and seek long-term returns.

Delving into the Fund's Holdings

IRBO adopts a highly diversified investment approach, providing investors with broad exposure to companies across the robotics and AI value chain. The fund's portfolio includes companies specializing in various fields within the technology sector, such as information technology, software, AI, and robotics. Moreover, it encompasses firms operating in other sectors like communication, industrials, and consumer discretionary.

The fund's top ten holdings include prominent tech companies like Meitu Inc, ZTE Inc, FuboTV, Faraday Technology Corp, and PB Fintech Ltd. These firms are renowned for their innovative contributions to the AI and robotics domains, making them potential beneficiaries of the anticipated exponential growth in these sectors.

The IRBO ETF offers a globally diversified portfolio, with holdings spread across several countries. More than 50% is US. This broad geographic distribution allows investors to benefit not only from domestic technological advancements but also from global innovations in robotics and AI.

Peer Comparison: How Does IRBO Stack Up?

When compared with similar ETFs, such as the Global X Robotics & Artificial Intelligence Thematic ETF (BOTZ) and the ROBO Global Robotics and Automation Index ETF (ROBO), IRBO stands out for several reasons. First, it holds a larger number of stocks (113) versus 43 for BOTZ and 78 for ROBO, which provides greater diversification. Second, its holdings are more balanced across different sectors, with non-technology stocks accounting for over a third of the ETF.

In terms of expenses, IRBO has a lower expense ratio than both BOTZ and ROBO at 0.47% versus 0.69% and 0.95% respectively, making it a more cost-effective option for investors. However, it's worth noting that IRBO's volume on average is lower compared to these peers, which could be a concern for investors who prioritize that from a trading perspective (though in reality, this doesn't matter for ETFs overall).

In terms of performance, while IRBO has delivered solid returns, it has been slightly lagging behind its peers. This could be due to various factors, including differences in portfolio composition, market volatility, and investor sentiment. However, considering the ETF's investment strategy and exposure to high-potential sectors, it could potentially deliver solid long-term returns.

Conclusion

The iShares Robotics and Artificial Intelligence Multisector ETF offers a strategic investment opportunity in the fast-evolving robotics and AI sectors. Its diversified portfolio, global exposure, and competitive expense ratio make it an attractive investment vehicle for long-term investors.

While the hype around the robotics and AI sectors may not currently translate into significant upward price movements, the long-term growth potential of these sectors cannot be overlooked as long as you're paying the right multiple. When we look at fundamentals, its P/E ratio isn't exorbitant, but I think one can get this at a cheaper price after a credit market dislocation which we may be about to enter.

If you're looking to invest in the future of technology and innovation, IRBO isn't a bad long-term option.

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