Over the past couple of years, several robotics funds have been introduced to the market, but the biggest challenge in the space today is to stay concentrated.
‘We focus on “pure-play” companies that have more than half of revenues from robotics or automation systems, because we really want to capture as much exposure to the robotics theme as possible.’
For example, Muirhead said that Swiss company ABB is one of the largest robot producers in the world, but just 20% of its revenues come specifically from robotics. That’s why the name never made it into his fund.
The fund manager added that the investible universe of his strategy is quite a bit smaller than the peer group, covering around 150 companies with a focus on much smaller and mid-cap companies.
Such a narrow focus leads to capacity restrains, which means that the fund, which has just reached $1 billion in assets under management today, would probably have to restrict investor access when it reaches $1.5 billion.
‘We wouldn’t grow our fund to $6 billion dollars even if we wanted as our fund’s estimated capacity is about $1.5 billion. This capacity limit is to an extent dynamic because it is based on the stocks in the fund and if those continue to grow faster than the market and become larger then perhaps we go beyond the limit of $1.5 billion.’
‘But I don't want to start buying into big conglomerates like Google telling people this is a robotics company because I think this is disingenuous.’
When asked about increasing mergers and acquisitions in the robotics space, Muirhead wasn’t concerned that his universe is shrinking.
He added that the opposite process is happening, as robotics technology is becoming cheaper and more accessible. Barriers to entry are falling as a result.
Muirhead said a similar change has already happened in the mobile phone space, as mobile phones became smarter, more capable and much more widely owned with time.
‘We’re now seeing the same kind of evolution in the robotics market, and in the same way that Nokia and Blackberry no longer dominate mobile phones, it may be dangerous to assume that the current leaders in robotics and AI will continue to dominate in the future.’
However, the fund manager noted that there are still areas that look attractive but which cannot be fully explored just yet. One such theme is robotic process automation (RPA), as there are not enough liquid companies to invest in yet.
‘Currently office workers have become “slaves to the machine”, filling in the blanks between disperate software applications. RPA could make our systems appear “smarter”, saving office workers a lot of time in their daily tasks. It could also replace a lot of the business process outsourcing work, currently done by companies such as Cognizant and Infosys.’
The fund manager also added that another uncharted territory is healthcare data, as hospitals have largely missed out on the PC and internet revolutions.
‘In our view, data relating to how patients are diagnosed and treated could and should be analysed to a much greater degree, to predict the best course of treatment for each patient and ultimately to cut unnecessary costs out of the system and to deliver a more effective and personalised treament plan for each patient.’