Investing in the rise of the robots
When it comes to robots and artificial intelligence (AI), the economic benefits can be huge, both in developed and emerging markets, and there are going to be major investment opportunities. What are your views?
It’s really the biggest thing that’s going to happen over the next 10 or 20 years and beyond, so it’s a source of incredible disruption. Whatever you’re interested in, say biotech for example, I think the reality is that the companies that will succeed in that space will be the ones that leverage AI. It’s not easy to understand the applications and who’s leading in terms of technology, but it’s incredibly exciting for investors and that’s why we’re working to develop a mechanism to invest in that sector, with the Rise of the Robots index.
From our clients’ perspective, we are keen to understand how we can benefit from that disruption. There’s always the topic of timing and where you go first. There is a difference between enabling that technology and, eventually, ordinary people being able to use it. Right now we’re more focused on that enabling aspect, but who knows where it will go as an investable theme.
I’m a big believer in next generation themes. I think there are a number of companies in each one of these themes that will continue to rise to the top. Looking at some of the big funds out there, do I need my robotics fund to own Amazon? Do I need it to own Alphabet, when it’s probably held elsewhere in other portfolios and other funds? So in terms of trying to dissect that segment just to get those specific robotics or AI names,
I don’t think the investing universe, in terms of liquid opportunities, has enough names to make that happen. You would maybe have to do it with some type of private equity opportunity, a new ground-breaking company, but then what happens? They get bought out by Amazon? I think it’s going to continue to develop, but you get a lot of overlap.
Getting back to some of the investments that are being held by some of these robotics funds, we have a lot of overlap with other funds as well. The diversification is not there yet.
What are some examples of the applications of AI and how are firms making the most of this nascent technology?
Those companies that are already leveraging these types of technologies are becoming far more efficient. It looks different in different industries, of course. Finance is already incredibly disrupted. You’ve seen what automated trading has done. You’ve got companies such as BlackRock making massive investments in AI and using that to get advantages in trading.
You’re seeing health insurance companies beginning to leverage AI in understanding patient data. You’ve got pharmaceutical companies using it for drug discovery. My belief is that what we’re looking at is something like a utility. It’s something that’s going to scale across every industry and disrupt every industry. That really underlies our whole approach in our index and ETF, so that we’re not just looking at robotics companies or AI companies or companies that are specifically building these technologies.
What I see with the competing ETFs is that there is way too much focus specifically on robotics. Robotics is one small part of the AI disruption. It’s basically taking AI and putting it into a physical machine. That’s important, but it’s a small part of what is really happening, and companies, indices or ETFs that focus too much on it are leaving a lot of value on the table. So I think it’s very important to take a much broader, holistic approach and understand how this is going to disrupt things across the board.
What about globally? Which countries are heavily invested in AI? How do you see China in that respect?
The countries that are ahead are China and the US, whereas Europe is lagging behind. In Europe, we have very good companies, but investment in AI is rather limited. In France, for example, there was a report a few months ago saying that we need to invest, only for France, at least €10 billion per year to catch up with the US and China. We’re waiting for a new report in Europe in the coming months saying what Europe should do to catch up, but we are lagging. We lag more in AI than in robotics. In robotics we have good companies, specifically in Germany and in Switzerland, but it’s true that it’s a regional issue at the moment.
A lot of robotics companies are based in Japan, but I think China also has a significant stake in that space given the size of the domestic market. I think one of the constraints that Europe faces is in AI, which is still largely based in universities, in my opinion. So there are just a few large companies in Europe that are investment opportunities at the moment, whereas the US and China have far, far larger companies in what is now the telecommunications space.
I think the two centres of research and progress in AI are certainly the US and China. There is going to be very real competition there. I think that both of those countries have certain advantages. The US is clearly still the leader in research and is probably driving most of the progress in AI, somewhat in universities, but largely at companies such as Google. Those big companies are really hoovering up the very best talent in the world. That’s the advantage of the US – it’s really the leader in developing the AI technology.
China has certain advantages in terms of the amount of data that is being generated. The country has such a huge population, and it has got much more advanced mobile payment systems. They pay for everything using WeChat. Every time they use WeChat to pay for something, it generates a piece of data which can then be fed into a learning algorithm. So that’s an incredible resource in China. There are also fewer privacy concerns. So both the US and China have advantages and there’s going to be a real battle.
What about Singapore? I like to think Singapore is catching up in the AI space as well, but Joyce, you seem a little doubtful.
I haven’t seen any evidence of that to be honest. But definitely, when it comes to China, you do see a lot of data.