Imagine a whole new world. A world in which self-driving cars populate the streets, artificial intelligence makes production faster and smarter, sun and wind fuel local production and cybersecurity keeps us safe. The newly launched Robeco Global Industrial Innovation Equities strategy invests in the companies that are making this happen.
Robeco Global Industrial Innovation Equities selects long-term growth trends driven by demographic, technological or regulatory changes. Lead portfolio manager Marco van Lent and Henk Grootveld see a number of trends that will change the face of production, shaping what they call the fourth industrial revolution. While the first industrial revolution was marked by the shift from manual to mechanical production, the second one by mass production and the third one by automation, the fourth industrial revolution is all about the next stage of automation, with the advent of robots, the Internet of Things and cyber-physical systems.
Within this transition, Van Lent and Grootveld discern four disruptive trends, i.e. Robotics, Digital Manufacturing, Energy Transition and Cybersecurity. Investing in multiple trends rather than one benefits the portfolio’s diversification and increases its breadth.
The first trend focuses on robots, co-bots, automation, advanced driver-assistance systems (ADAS) and autonomous cars.
The portfolio managers foresee that robots will replace most heavy-duty work still done by humans. And this will promote the return of local production. After all, whereas labor costs differ greatly from one country to another, the price of robots is more or less equal. In terms of costs, it doesn’t matter so much whether a robot sews a pair of jeans together in Beijing or Chicago. For the US market, the latter is even more attractive because of lower transport costs and shorter delivery times. Embracing robot technology and automation is the solution for both a shrinking labor force and rising labor costs, as robots become smarter and cheaper.
The second trend revolves around Big Data, Artificial Intelligence, the Internet of Things (the interconnection via the Internet of computing devices in everyday objects), Digital Infrastructure and Augmented Reality & Virtual Reality.
Factories are becoming smarter due to new digital production techniques. Market research company IDC predicts that 75% of all enterprises and independent software vendors will include Artificial Intelligence (AI) functionality in at least one application by 2018. That is next year. AI will allow faster decision making, productivity gains, pattern detection (allowing companies to make suggestions to their clients) and increased data monetization.
The third trend is about solar and wind energy, energy storage and the smart grid.
Renewable energy is rapidly becoming cheaper. Bloomberg New Energy Finance expects wind and solar energy to be cheaper than natural gas by 2020 and cheaper than coal by 2024. The increased use of renewable sources in electricity generation requires heavy investments in ‘smart grids’, as renewable generation is inherently unpredictable. A smart grid is an electrical grid which uses digital information and controls technology, such as smart meters and renewable energy, to improve the reliability of the grid.
The fourth and final trend is cybersecurity.
Recent hacks upsetting the functioning of hospitals, telecommunications companies, railways and airlines expose our vulnerability to cyber-attacks. This vulnerability has increased rapidly with the advance of cloud computing and the Internet of Things. Cybersecurity has become a necessity and not surprisingly, IT spending on security has grown substantially over the past ten years.
The average age of production facilities, especially in the US, has never been as old as today, as most investments were postponed due to the Global Financial Crisis. In addition, demographic developments ensure a long-term need for automation and the strongest robot penetration is found in countries with shrinking labor markets. The technologies to make a new, smarter and more efficient way of producing possible are developing quickly. Populist governments are supporting this development. Trump’s America first and China’s shift to a more domestic consumption-driven economy are kick-starting the industry of the future.
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