IRBO: Current Price Offers A Great Entry Point To Gain Exposure To AI And Robotics

Among the generally accepted macrotrends of our age robotics and artificial intelligence are undoubtedly among them and, as such, there are several ETFs that seek to ride this trend. iShares Robotics and Artificial Intelligence Multisector ETF (NYSEARCA:IRBO) is part of the BlackRock Macrotrend ETFs, insofar that it attempts to gain exposure to companies at the forefront of innovation in robotics and AI. With its net assets at roughly $243 million and 120 holdings as of January 12, 2023, this ETF has definitively the potential to provide the kind of diversified exposure retail investors might seek.

What does IRBO hold?

Some of the top-10 holdings of IRBO are well known Chinese tech giants such as Tencent (TCEHY), Alibaba (BABA) and Baidu (BIDU), while most of the remaining are smaller and less known companies. Although the three companies mentioned above are not exclusively focused on robotics or AI, they have been notoriously investing in this area. For instance, Tencent has announced in 2020 a $70 billion investment in new infrastructure for AI, cybersecurity and cloud computing. Baidu is one of China’s top companies in AI research, with historically high investments in the sector. Finally, Alibaba has always invested heavily in AI and robotics to improve its e-commerce business and cloud computing business.

Arguably, not all of the names featured in the top-10 are pioneers in either robotics or AI. For instance, iQIYI (IQ) is a Chinese provider of online entertainment, or Hello Group (MOMO), which is a Chinese company that owns several online social networking apps. In both of these industries machine learning and AI have definitively a space but in which they are definitively not the core business. However, there are also other companies in for which robotics and AI seem to have a more core role in their business. Norway-based AutoStore Holdings for instance is in the business of warehouse and cube storage automation, Kingsoft Cloud (KC) is the largest independent could provider in China, Atos (OTCPK:AEXAF) is a French-based company specializing in cloud, big-data and cybersecurity, and the list goes on. Other big names that are featured in IRBO are Netflix (NFLX), Amazon (AMZN), Sony (SONY), Meta (META), and many others. These companies need no introduction and are all heavily involved in both AI and robotics to different extents.

Sector-wise, we can see below that the Information Technology, Communication and Industrial sectors account for almost 90% of holdings. These numbers are not surprising given the nature of business in these sectors.

Exposure and details

As of January 12, 2023, IRBO has a NAV just shy of $244 million invested across 120 companies and a relatively low PE ratio of 16.20. The low PE ratio is likely due to the recent selloff of tech companies in the general market and the fact that many holdings are Chinese-based companies, which didn’t experience their best period the past couple of years. With IT and Communication companies accounting for almost 75% of holdings, as shown in the figure above, it’s not a surprise that the ETF was affected by the selloff. This can also be seen from the price graph below.

Furthermore, as roughly 13% of investments are based in China, the ETF clearly suffered from the general outflow of funds from the country, due to several factors as mentioned by Bloomberg. However, the fact that Chinese stocks have suffered until recently can imply that a rebound is due relatively soon, giving new investors a good entry-point from this perspective. In fact, hopes of a Chinese re-opening are pushing the country’s stocks high again.

Fund performance and competition

The figure below shows some of the key characteristics of the IRBO ETF.

However, IRBO is not the only fund around with the objective of providing exposure to robotics and AI. Among the most known ETFs with similar objectives the are Global X Robotics & Artificial Intelligence Thematic ETF (BOTZ), ROBO Global Robotics and Automation Index ETF (ROBO) and First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT). The table below summarizes the assets under management and expense ratio for all four funds, with all data taken from Seeking Alpha website.

ETF	Assets Under Management (as January 22, 2023)	Expense Ratio
BOTZ	$1.44 billion	0.68%
ROBO	$1.26 billion	0.95%
IRBO	$245 million	0.47%
ROBT	$188 million	0.65%

Click to enlarge

While there are definitively advantages of investing in the largest funds, given that they are likely more liquid. However, IRBO does have the lowest expense ratio, which for a long-term passive investor with a dollar-cost averaging strategy should be a critical aspect to consider. In the long term, even a seemingly small difference of 0.18% in the expense ratio can have a relatively significant impact on the investment outcome, depending on capital and time horizon.

Price trend is favorable

Given what we mentioned above regarding the ETF’s exposure, both country-wise and geographically-wise, it’s no surprise that the price has fallen quite drastically since the end of 2021, as the price chart below shows. While it is true that this is historically a quite volatile and uncertain moment: high inflation in the US and Europe, interest rate hikes hurting equities – especially tech ones, Chinese post-COVID opening pushing equities which might become too crowded, and overall global tensions worldwide, for the long-term investor this might be a good entry opportunity.

Looking at the price chart below, we see that the current price has fallen back to early 2020 levels. For investors who believe in the macrotrends of AI and robotics and that have a long-term view on their positions this might represent a good moment to buy shares of this ETF.

Risks toward investing

ETFs such as IRBO can be a double-edge sword, especially regarding the AI side of this strategy. On one hand, IRBO provides diversified exposure to a relatively new market in which is difficult for most to identify the companies that will turn out being on top of these macrotrends. On the other hand, the diversification can hide companies that are actually not part of robotics or AI. When investing in ETFs, it’s always advisable to at least cover the top-10 holding and to understand the general rationale of the investment strategy.

According to iShares Summary Prospectus, IRBO seeks to invest in companies, in both developed and developing economies, that are poised to benefit from long-term growth and innovation in robotics technologies and AI. To be included in the index companies must derive at least 50% of their revenues, have at least 20% market share, or generate $1 billion or more in absolute annual revenues from one of the industries defined as having significant exposure to robotics and artificial intelligence. There are also criteria such as companies’ market cap or trading volume, but the main point is that the fund has in place methods to assess the degree of involvement in robotics and AI of the investment companies.

Conclusions

While some companies in this ETF could arguably be outside of the strategy, the vast majority is involved and active in either AI or robotics. The point of ETFs like IRBO is that they allow to be exposed to multiple ways of approaching an innovative technology without having to pick one specifically. For investors that wish to gain exposure to two potentially very rewarding macrotrends can find a suitable instrument in IRBO.

A relatively high level of uncertainty in the market given by the high inflation in the US and Europe, growing interest rates, China’s reopening but uncertain political and regulatory environment, can also provide upsides to the investor that has a long-term view on these sectors. Given everything mentioned above, a suitable strategy to build exposure through IRBO can be that of dollar cost averaging, which would further allow investors to shield themselves from short-term volatility.