Yesterday, First Trust launched an ETF covering a category at the cutting edge of the technology space. The First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT) is not the first fund to target this particular theme, but the issuer has brought its own take to the space.
ROBT lists on the Nasdaq and comes with an expense ratio of 0.65%, which means it is the cheapest robotics and AI fund available to U.S. investors.
“Our fund is really designed to accomplish a few things,” said Ryan Issakainen, senior vice president and ETF strategist at First Trust. “One is to give exposure to the robotics as well as AI space, which we think is one of those longer-term secular themes that’s going to really change a lot of other technologies and parts of everyday life such that 10 years from now we’ll take them for granted. This is a way to gain exposure to that innovation.”
“But at the same time, we want to maintain a very liquid portfolio that allows investors to move in and out of the space without having a large market impact,” he added.
The fund tracks an index developed by the Nasdaq and the Consumer Technology Association, the Nasdaq CTA Artificial Intelligence and Robotics Index. The benchmark’s methodology selects stocks at the global level that meet have sufficient liquidity, at least $250 million in market capitalization and free float of at least 20%.
“The majority of the portfolio goes into what Nasdaq calls ‘enablers,’ which are what they view as the pure plays of the robotics space,” Issakainen said, noting that the goal of the index was to offer as much pure-play exposure as possible, while still maintaining strong liquidity.
Companies are sorted into three buckets: engagers, firms that are directly involved in the space by designing and creating products, software and systems; enablers, firms that develop and offer the components that robotics and AI rely on such as advanced machinery, semiconductors and machine learning databases; enhancers, firms that offer services that are used by the engagers group but are not central to the development of the engagers’ products.
Each company is scored within its group based on a CTA AI/Robotics Exposure Score that measures the firm’s exposure to the theme, and the top 30 companies in each bucket are selected. The engagers bucket is weighted at 60% of the index, while enablers and enhancers are weighted at 25% and 15%, respectively. The methodology equal-weights the companies within each bucket, the prospectus says.
At launch, ROBT’s index included 85 securities, with the U.S. representing 55.6% of the index, Japan at 11.2% and the United Kingdom at 8.9%. Information technology was the largest sector, at nearly 68% of the index, while industrials represented 15.7% and consumer discretionary represented 8.7%.
ROBT will compete directly with two other ETFs that have roughly $2.3 billion in assets each. The ROBO Global Robotics and Automation Index ETF (ROBO) launched in 2013 and comes with an expense ratio of 0.95%, while the Global X Robotics & Artificial Intelligence ETF (BOTZ) made its debut in 2016 and charges 0.68%.
Among other key differences, the two older funds have weightings in the industrials space of 59.4% and 70.5%, respectively, while BOTZ’s index has a 51% weighting to Japan and a 27.5% weighting to the U.S.
“Obviously, it’s a theme that advisors are interested in as evidenced by the rush of assets that have gone into the competing funds,” Issakainen pointed out.
Contact Heather Bell at [email protected]