Robots. The Social Distancing Trade.
Although the world is still processing the reality of what modern life looks like under threat of a global pandemic, one thing that seems clear to Wall Street is that it will involve far less human contact and a good deal more computerization and automation. Look no further than the performance of the Indxx Global Robotics and Artificial Intelligence Thematic Index (IBOTZNT), which has outperformed the S&P 500 by 35% since the March 16 low.*
Not coincidentally, the Daily Robotics, Artificial Intelligence & Automation Index Bull 3X Shares ETF (UBOT), has seen particular growth over the past few months. The daily leveraged ETF, which aims to replicate 300% of the daily performance of IBOTZNT, has grown by more than 130% over the past two months.
Propelling this growth is a heightened awareness among executives, investors, and management teams that contemporary life is permanently and fundamentally changed as a result of the COVID-19 outbreak. For good or ill, the virus has put centuries-old customs and practices that have prevailed in the corporate world under modern scrutiny.
Source: Bloomberg. June, 5, 2020. The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.
For the fund’s standardized and most recent month end performance click here www.direxion.com/etfs
Below are a few examples of how companies represented in UBOT and the IBOTZNT index have captured the imagination of investors and business leaders looking to the future of global commerce.
Among the most apparent weak points in the global economy affected in the current viral crisis are those industries where human employees are expected to work in close proximity to others, with businesses in manufacturing, logistics or even the retail and healthcare industries unable to safely keep employees on the assembly line or in the field without risking exposure to the virus.
The answer to this problem has long been robotic automation. Even before the global pandemic gripped the world, industry group The Robotic Industries Association (RIA) reported that 2019 saw a 1.8% increase in North American robot orders over 2018.
Traders certainly feel the current pandemic will hasten this adoption. Companies like Keyence, OMRON and SMC Corporation, which manufacture component parts for industrial automation and precision robotics have both hit new 52-week highs in May. Another robotics firm in that new-highs camp is Daifuku, which in particular has seen increased investor interest likely as a result of the company’s specialization in automated materials handling and warehouse management, areas that have been particularly critical during the pandemic.
And while others in the robotics field like Fanuc and ABB, which specialize in heavy industrial robots, have lagged behind those in the component business, robotic arms are being actively researched for their potential in virus screening processes as well as in meat processing, food delivery and healthcare automation.
No Touch Automation
Of course, industrial and kinetic robotic applications are only one aspect of automation, and a far greater number of firms are being faced with challenges related to streamlining business processes that were once handled by employees in the office or through human contact.
Even before the pandemic, these operational functions were rapidly being taken over by intelligent software or data workflow systems. A recent report by technology industry analyst firm Gartner estimates that enterprise software like the kind used in process automation was the fastest-growing segment of the IT market in 2019. And despite the headwinds represented by the pandemic, the firm predicts that spending on software that will increase operational efficiency will remain relatively steady compared to other segments.
This has translated into massive trader interest in companies offering enterprise software or advanced computing. Newly public software and AI firm Dynatrace Inc. is among those stocks that have remained buoyant during the pandemic thanks to its broad exposure, not only to enterprise software and analytics but also cloud computing.
Then, of course, is Nvidia, which in addition to leading the semiconductor and GPU markets, is also a strong contender in advanced computing and AI. All of this has contributed to supporting stock in the company to new all-time highs in May.
Beyond The Digital Workforce
In an age of near-instant global communication, the limitations of quarantine and social distancing are far less onerous than they might have been a short decade ago.
It then makes sense that these robotic and digital tools are finding new and novel uses in restructuring how business is done in the modern world, with or without the threat of virulent disease or inclement environmental and social conditions disrupting the flow of global commerce.
*As of June 5, 2020
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.
For the fund’s standardized and most recent month end performance click here (www.direxion.com/etfs)
Short-term performance, in particular, is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes.
UBOT as of 3/31/2020
This leveraged ETF seeks investment results that are 300% of the return of its benchmark index for a single day. Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by an ETF increases the risk to the ETF. The Direxion Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged investment results and intend to actively monitor and manage their investment.
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Market Disruptions Resulting from COVID-19. The outbreak of COVID-19 has negatively affected the worldwide economy, individual countries, individual companies and the market in general. The future impact of COVID-19 is currently unknown, and it may exacerbate other risks that apply to the Fund.
Shares of the Direxion Shares are bought and sold at market price (not NAV) and are not individually redeemed from a Fund. Market Price returns are based upon the midpoint of the bid/ask spread at 4:00 pm EST (when NAV is normally calculated) and do not represent the returns you would receive if you traded shares at other times. Brokerage commissions will reduce returns. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. Some performance results reflect expense reimbursements or recoupments and fee waivers in effect during certain periods shown. Absent these reimbursements or recoupments and fee waivers, results would have been less favorable.
Direxion Shares Risks: An investment in the ETFs involves risk, including the possible loss of principal. The ETFs are non-diversified and include risks associated with concentration that results from an ETF’s investments in a particular industry or sector which can increase volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. The ETFs do not attempt to, and should not be expected to, provide returns which are a multiple of the return of their respective index for periods other than a single day. For other risks including leverage, correlation, daily compounding, market volatility and risks specific to an industry or sector, please read the prospectus. Robotics and artificial intelligence companies may have limited product lines, markets, financial resources or personnel. These companies typically face intense competition and potentially rapid product obsolescence. Robotics and artificial intelligence companies, especially smaller companies, tend to be more volatile than companies that do not rely heavily on technology.
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