Why Buy ROBO-STOX Global Robotics and Automation ETF

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Amazon.com CEO Jeff Bezos' audacious goal of one day delivering customer orders via automated drones has inspired investors to rethink science fiction as science possibility.

"The global marketplace is past the tipping point of adopting robotics and automation, and all of the incorporation of this technology up to now is only the beginning," Kevin Lane, chief investment officer of Fusion Analytics Investment Partners in New York, told IBD.

That helps explain theRobo-Stox Global Robotics & Automation Index ETF 's ( ROBO ) rapid growth to more than $84 million in assets in just three months since its debut on the stock market .

ROBO has returned 5% since its inception on Oct. 22 vs. 3% for theSPDR S&P 500 ( SPY ). But the market correction hasn't been kind to ROBO and its holdings. ROBO is down 5% year to date while SPY has shed 3%.

The ETF created by Dallas-based Robo-Stox LLC contains 78 U.S and foreign companies engaged in developing industrial and health care robotics, 3D printing systems, consumer robotics, and related software and parts.

"For many years, only heavy industrial businesses like car manufacturers used robots and automation systems. These days, robotic machines are revolutionizing a wide variety of industries," Lane wrote. "Apple ( AAPL ) plans to invest $11 billion in robotics and automation, whileGoogle ( GOOG ) has opened a robotics division and acquired seven companies to build out that business."

ROBO has 36% of assets invested in U.S stocks, 25% in Japan, 7% in Germany, 7% in Taiwan, 5% Switzerland and micro-exposure to 10 other countries. The portfolio weights 40% of assets in bellwether stocks, or the primary players in the industry, and 60% in non-bellwether companies that get a small amount of sales from robotics.

Eighteen bellwether stocks are weighted 2% each, while the rest are weighted 1% each. The U.S. bellwethers are3D Systems ( DDD ),AeroVironment (AVAV),Cognex (CGNX),Faro Technologies (FARO),Intuitive Surgical (ISRG),iRobot (IRBT),Lincoln Electric (LECO),Mako Surgical (MAKO),Oceaneering International (OII) andRockwell Automation (ROK).

The portfolio is rebalanced and/or reconstituted quarterly. It charges an annual management fee of 0.95% vs. 0.50% for ETFs on average.

Holdings With The Most Buzz

With much promise comes much risk. Shares of 3D Systems have tumbled 28% year to date. The maker of revolutionary printers that spit out three-dimensional objects cut its earnings guidance for the fourth quarter owing to heavy investment in R&D, manufacturing and marketing amid weak industrial and consumer demand.

Credit Suisse analysts lowered their price target and rating on the stock to neutral earlier this month. The silver lining is that 3D Systems "highlighted that investment and market share gains should drive organic growth of 'at least 30%' over the next couple of years," Credit Suisse analyst Jonathan Shaffer and his colleagues wrote in a client note Feb. 4.

That's a faster clip than rivalStratasys (SSYS), which expects to see 25% organic revenue growth in '14.

S&P Capital IQ, on the other hand, maintained its buy rating on expectations that 3D Systems' backlog will nearly double in the coming years thanks to higher consumer and health care demand.

Rockwell Automation, down 5% year to date, beat fiscal Q1 earnings and sales forecasts and raised guidance for 2014. The electrical equipment firm repurchased a million shares in Q1. It still has $400 million of its $1 billion buyback program.

S&P Capital IQ issued a strong sell rating on Intuitive Surgical, the maker of Da Vinci Surgical Systems and medical instruments, in a Feb. 1 note. Shares have climbed 9% year to date. "Negative press, U.S. hospital capital spending constraints, the health care reform law, and the freed-up capacity of existing robots will continue to pressure Intuitive's U.S. systems sales," S&P Capital IQ analyst Phillip Seligman wrote.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: ROBO , SPY , AAPL , GOOG , DDD

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