Author: Maha Khan Phillips
Rolando Grandi, CFA, is a Fund Manager at La Financière de l’Echiquier (LFDE). He considers innovation, robotics, and artificial intelligence as part of his investment approach, and talks to Professional Investors about what those themes might mean for the future.
PI: You’ve written about the Rise of the Machines and the importance of robotics, and their growth. What are some of the innovations in robotics that are particularly exciting?
Rolando Grandi, CFA: I’m deeply enthusiastic about the future of our economy. We are facing several headwinds that are negatively impacting global growth and I think that robotics and Artificial Intelligence will have a leading role to help us reach higher productivity which will in turn increase global GDP growth as we exit the Covid crisis. The sector itself is extremely innovative. While we usually think about robotics in the industrial automation space, there are several new applications in healthcare through surgical robots as well as in logistics and the need to automate and speed-up how products are fulfilled and shipped.
Intuitive Surgical, for example, is a company that we admire given how much technology and innovation they brought to the healthcare sector. The robot allows the human surgeon to perform minimally invasive surgery, which is not only safer but also improves the cost equation for the hospital. In addition, the robots are getting smarter and can help the surgeon improve the outcome of every surgery. If we think about logistics, we really appreciate companies like Cognex and Keyence that are allowing logistic companies to implement automation capabilities with a technology called machine vision. The boom of ecommerce and the rising share of staples that are being bought by these platforms have confirmed the urgency to automate what otherwise are high labour-intensive tasks.
PI: So what other sectors and industries are most poised for this type of innovation?
Grandi: Beyond healthcare and logistics, all sectors can benefit from the Rise of the Machines. We think the most exciting aspect is that we are automating both the physical world, which is what we usually think of when we imagine robots, but also the digital world through automation. If we think about the latter, my expectation is that increasingly more companies around the world will deploy automation capabilities in all their business lines, liberating human workers from repetitive tasks. One prime example of it is a technology called robotic process automation. These digital robots can observe, learn, and perform tasks that are usually done by human workers at offices like transferring data from one file to another, generating reports, filling customer relationship databases or validating invoices and proceeding to the payment. And fear not the fast pace of change, many surveys have demonstrated that employees welcome these type of innovations as they can have more time to do more value-added activities.
PI: What are some of the investment implications of the growth of robotics?
Grandi: As a fund manager it is critical to understand the growth trajectory of this investment opportunity. Not only is the growth these companies are seeing significantly higher than global GDP growth, but the addressable market is expanding by the day. As the robotics technology improves, more applications can be developed, which can be trustfully used by robots both in the physical world and in the digital realm. What I see on a global basis is countries like the US and Japan that are extremely advanced in developing these technologies, as well as countries like Taiwan and China joining the bandwagon. The latter have based their growth on labour-intensive businesses like manufacturing and electronics, but as demand for these products increase it has become necessary to step-up their investments into robotics and AI. Therefore, we see several investment opportunities globally, as well as cross-sectors. We are also seeing several startups come to market with innovative products and new approaches to automation. We expect that some of them, the most successful, will enter the market over the next five years which will provide new investment opportunities.
PI: What is your own investment approach and philosophy in terms of capturing this growth?
Grandi: Our investment philosophy is quite simple and based on three things. First, we look for companies that are growing fast - it seems easy but in today’s world there are only a handful of them. Second, we identify companies that have what is necessary to maintain their leadership or become the next leader through innovation. And finally, we focus on innovation. I love companies that keep investing in their products, making them better and more adapted to their customers’ needs. I look at this on a global basis with investments, independently of the size of the company or what sector they are categorised in. We think that to be successful when investing in today’s financial markets, and particularly in innovative companies like we do, it is necessary to focus first on the technology and the product, then to validate the financial and extra-financial data, and finally to have a disciplined valuation framework to invest in those that have what is necessary upside to provide strong returns over the long-term.
According to IDATE Digiworld, the robotics market is estimated to be $90 billion by 2030.
The advent of robotics and disruptive technologies are having an impact on companies and employment. Destructive innovation is killing some jobs but is expected to create many new, skilled jobs. Like the development of the printing industry or the textile industry, robotics will move some jobs, destroy them but create many others. PwC estimates that between 2017 and 2037, seven million jobs will be displaced by AI and robotics. And in total, a World Economic Forum report in 2018 estimated that robotisation will create fifty-eight million net new jobs by 2022. The potential for value creation and jobs is therefore positive.
PI: How can institutional investors best position themselves to take advantage of this theme?
Grandi: The meteoric rise of thematic investing is providing new and exciting opportunities to institutional investors to gain pure exposure to these strong underlying trends. The world is changing at an unprecedented pace and new megatrends are being minted as we speak. Investors from all horizons are becoming more and more aware of the need to capture this turning point in history to the benefit of their portfolios and people’s savings managed by these investors. With my team, we have the chance to be able to engage daily with investors from all over Europe and most of the time their need is the same: we hear about these new technologies and trends, how can we best capture those growth opportunities? You need a strong and disciplined investment philosophy, a love for innovation, and a focus on companies, rather than markets.