Three crucial questions investors should ask about robotics and tech, February 2018

Working and living alongside robots sounds like something from a sci-fi script, but this could become a reality much sooner than most people think.

For instance, the International Data Corporation published a report last June which predicted that global spending on robotics will grow at a compound annual growth rate of 22.8% by 2021*.

Given that the rapid advancement of tech could have such a significant impact on the broader economy, not to mention our everyday lives, we explore three burning questions that investors may wish to ask.

Are technology stocks far too expensive to invest in now?

The dot-com boom, which occurred between 1997 and 2000, saw the price of tech shares rocket as global internet usage increased exponentially. As speculation added fuel to the fire, the valuation bubble burst in 2000 and had a detrimental impact on many investors' portfolios.

Given that US tech giants such as Facebook, Amazon, Netflix and Google (or the FANG stocks) have accounted for 42% of the US stock market's gains since 2014**, is this a phenomenon we have to worry about once more?

Not necessarily. Unlike the late 90's, today's tech valuations are based on more than just an idea. There are a number of funds that remain positive on FANG stocks, such as Rathbone Global Opportunities, as the manager believes their growth potential warrants their price tags.

For those worried about valuations in the market area though, Schroder's Guy Richardson said the European tech sector yields a wealth of opportunities.

“To date, Europe has not produced tech giants on the scale of the US; the market value of the entire European tech sector amounts to just 8% of our US cousins,” he said.

“Emerging technologies can revolutionise the way a business makes money, leaving today’s winners as tomorrow’s losers. The European tech sector should therefore not be ignored.”

Will robots take over people's jobs?

The initial fear is that, if automation puts people out of work, this will have a huge social and economic impact across the globe. While the rise in robotics may increase productivity, what will happen to lowly-skilled workers and how will our education system need to change, for example? Once an entire sector of workers lose their jobs, how will this impact consumer spending power?

Walter Price – a technology manager at Allianz – said artificial intelligence (AI) technology is only good at repetitive tasks and is far from turning the job market upside down in the near future.

“My view is that AI is only as good as the people training it and using it,” he said. “I think that it actually creates a lot of demand for people who are knowledgeable on a subject area and can use the tools that are available for analysing data, so it creates a lot of demand for consultants.

“I think one of the keys to AI is to make it easy enough to use – or to educate the workforce on how to use it to improve their productivity. So you get rid of the boring work and you instead focus on jobs which depend on human judgement beyond algorithms.

“Technology is always destroying some industries or destroying some jobs, but is also creating and improving some.”

What is next for robotics and how much further can the sector grow?

The team at AXA Investment Management – which is home to AXA Framlington Global Technology fund – said that, as robotics become cheaper, they become more accessible to small and mid-cap companies and not just large firms with deep pockets.

Not only this, it pointed out that 74% of robots are purchased across just five countries, which means there is plenty of scope for the market area to expand.

“New technologies mean the use of industrial robotics will continue to increase efficiency, precision and safety,” Tom Riley, who is a portfolio manager at AXA Investment Management, said.

“We think this is a significant growth opportunity and that we are only in the early stages of this long-term disruptive trend.”

Ruth Nash, co-manager of the JOHCM Japan and Japan Dividend Growth funds, said there is also greater scope for growth in Japan – a market area which is already dominated by robotics companies – because of the direction in which its demographics are moving.

“Whilst we in the West worry about our jobs being taken by robots, the demographic challenges of Japan mean that this is an economy which would, to some extent at least, welcome such a development,” she added.

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Ryan's views are his own and do not constitute financial advice.


Published on 08/02/2018