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ETFs: Investing in automation has become the latest 'mega-trend,' expert explains

ROBO Global Head of Advisor Relations Lauren Hein joins Yahoo Finance Live to explain how more investors are shifting towards robotics and how increased automation could affect the job market.

Video Transcript

RACHELLE AKUFFO: Let's look at some alternative ways to actually invest in this space with Lauren Hein, Robo Global head of advisor relations, brought to you by Invesco QQQ. So great to have you on the show here. So for people who are wondering, perhaps, they want to invest in some of this new technology, talk about some of the holdings in this ETF and how investors can get in on this.

LAUREN HEIN: Yeah, so Robo Global, the company, built Robo, our robotics and automation ETF, almost a decade ago. So we're investing across the entire ecosystem of robotics and automation, so really looking at automation as a megatrend. About half the portfolio, actually about 60%, is in areas where we can apply these robotics technologies. And about 40% is the technology, the sensing and computing actuation, AI, and integration-- the technology underneath the robots.

So we believe that you should really own the whole ecosystem of automation because while automation is relentless, it's not perhaps moving sector by sector in lockstep. So sometimes you're catching really great growth, really great opportunities. Right now, logistics automation, you want to talk Amazon. Logistics automation is something we're also excited about. And you want to also own the companies in 3D printing that maybe are not so much seeing the fad like they were maybe five years ago, but are an integral part of the automation ecosystem.

SEANA SMITH: Lauren, there certainly are so many players in this space, even more companies jumping in, it seems, like on a daily basis when it comes to automation. How are you picking out the winner since it is such a broad spectrum?

LAUREN HEIN: Yeah, yeah, so we look at the 11 subsectors that we really think make up the automation ecosystem. And we look for market leaders in those sectors, for technology leaders in those sectors. So we want to really populate the entire spectrum with leaders. We want to talk about-- let's talk about warehouse automation. 20% of the warehouses in the United States are only using some amount of automation today.

So we look at a company that's going to be able to really penetrate that market and provide solutions there. We want to talk about logistics automation. We're going to talk about companies like-- Machine Vision is going to be a key part of that, so Cognex and Keyence from Japan and Samsara. Ultimately, we don't care where a company is located. We just care that they're leaders in some component of the automation megatrend.

DAVE BRIGGS: Pre-pandemic automation was viewed as really a threat to jobs not just here, but around the world. But how is the employment shortage in just about every field imaginable actually contributing to the growth of some of these companies?

LAUREN HEIN: Yeah, I think McKinsey said that there were-- 88% of the companies that they surveyed last year said that they're going to employ some sort of automation technology. The obvious places to think are going to be manufacturing and some sort of warehouse. I mean, gosh, Amazon's attrition rate last year was like 160%. So you've got to start thinking that robots can do some of these jobs.

Obviously, with wage inflation, automation is going to solve that problem to some extent, make the investment in robots, and then you've got some sort of cost control there, as opposed to the variability of labor. But there are-- robots are not going to replace people everywhere. Cobots is also a major industry, and cobots are going to work alongside people, just things that we can't do with just the machine.

RACHELLE AKUFFO: And Lauren, I want to ask you about supply chain challenges. Obviously, not just for things like the chips that go into this technology, but even the materials, some of these commodities that we see that are required that are needed for growth in some of these industries. What are you watching in that space? And how concerned are you that some of these supply chain issues still haven't been resolved yet?

LAUREN HEIN: So the supply chain issues are especially hairy for some of the companies in the manufacturing or capital goods side of the robo ETF companies like FANUC, Daifuku, Kardex even. Like, these companies are trying to meet the demand for robots and robotics, but they're just having issues getting not just semiconductors, but they're also having trouble getting component parts like sensors and other types of actuators.

It's just been an ongoing issue. They're not able to meet the demand for this-- for the orders that they have right now. So you're actually having sales growth continue to climb. But these companies in the robotics manufacturing space just not being able to meet their current orders.

So it's ongoing. You will see some reshoring, obviously, here in the US. We're really leaning into manufacturing our own chips and the semiconductor fabs that were estimating to build, I think, 10 over the next two years as part of the Chips Act that we passed this summer. So, yes, the supply chain is an ongoing concern. But it's going to take a few years to resolve.