ishares Automation & Robotics UCITS ETF

Transcription

1 ISHARES MEGATRENDS SEPTEMBER 2017 ishares Automation & Robotics UCITS ETF Accessing tomorrow s growth drivers today RBOT Key Stats Ticker RBOT ISIN IE00BYZK4552 Fund inception 12/09/2016 Number of holdings 103 Fund Size $727.9m Annual rebalance review The istoxx Factset Automation and Robotics Index, (the index) the benchmark for RBOT, underwent an annual rebalance on June 16 th. This was the first rebalance since the launch of the ETF. In this piece we examine: 1. Annual rebalance rationale and background 2. Detail the portfolio implications of constituent changes 3. Examine the experience of our portfolio manager in implementing the changes 1. Annual rebalance rationale and background The index rebalances annually on the third Friday of June reformulating the list of constituents based on the requirements and constraints as detailed by the methodology*. As with any index, a large amount of scenario analysis is undertaken ahead of launch to ensure the construction is suitable for purpose. Beyond this, there are two further rationales for the annual rebalancing employed by the index: Theme nascence: the more future-focused an investment theme, the longer it may take for an individual stock s potential to be realized, hence the lessfrequent rebalance than many traditional indices. Transaction costs: Rebalancing less frequently reduces turnover-driven transaction costs. Equally weighted indices are likely to have higher turnover than traditionally-weighted indices. 2. Constituent changes and portfolio implications Before the rebalance the index provided exposure to 94 global developed and emerging markets stocks across the market cap spectrum. The rules based methodology* that utilizes Factset data to classify stocks to a very granular level determined that 9 stocks were removed from the index and 22 were added, meaning a net addition of 13 stocks. Details can be found overleaf, a few highlights of the changes: Index broadening, increased number of constituents from 96 to 103 Shift to Asia, reduction in US names (Page 3) Large cap increase (Page 3) Industrials element increase, software decrease (Page 4) Source: Factset, Stoxx, BlackRock at 30/06/2017. *An overview of the index methodology can be found in the appendix on page 6. Source: BlackRock at 31/08/2017

2 Security level adds/deletes index broadening The index broadened from 92 names to 103 names There were 9 deletions and 22 additions meaning a net addition of 13 stocks Securities Deleted Name Country RBICS L6 G-TREEBNT KR Other Handheld and Smart Phone Software Hitachi High-Technologies Corp JP Test, Measurement and Metrology Equipment Makers OC OERLIKON CH General Factory Automation Makers Omron Corp. JP Monitoring and Control Sensor/Instrument Products OPERA SOFTWARE NO Other Handheld and Smart Phone Software SAMART TH Smart Phone Manufacturing SHAI.BAOSIGHT SOFTWARE CN Manufacturing Industry Software SOFTWARE DE General Enterprise Management Software VERINT SYSTEMS US General Enterprise Management Software Securities Added ASIA OPTICAL TW Lasers and Optical Instrument Manufacturing ASMEDIA TECHNOLOGY TW Networking Semiconductors COHERENT US Lasers and Optical Instrument Manufacturing Emerson Electric Co. US Monitoring and Control Sensor/Instrument Products Faraday Tech TW Other Programmable Logic and ASIC Semiconductors FENNER GB Material Handling/Conveyor Equipment Manufacturing Genius Elec TW Lasers and Optical Instrument Manufacturing GREE JP Mobile Platform Applications Software GREEN CROSS CELL KR General Factory Automation Makers GUC TW Other Programmable Logic and ASIC Semiconductors KONECRANES FI Material Handling/Conveyor Equipment Manufacturing LASERTEC JP Test, Measurement and Metrology Equipment Makers LINE JP Mobile Platform Applications Software Lite On Semi TW Diversified Semiconductors Mirle Auto TW Industrial Robots and Robotic Assembly Line Makers NOVA IL Test, Measurement and Metrology Equipment Makers Obic Co. Ltd. JP General Enterprise Management Software Realtek Semicon TW Other Communications Semiconductors REGAL BELOIT US Other Electric Motors and Motion Control Products Teradata Corp. US Business Intelligence Software TKH GROUP NL Other Automation Support Product Manufacturing V TECHNOLOGY JP Lasers and Optical Instrument Manufacturing Resulting country, sector and market cap* allocations The index is designed to provide exposure to the global market for the theme, so the stock universe from which it selects, the Stoxx Global Total Market Index includes both DM and EM stocks. Examining the post-rebalance allocations resulting from the rules based methodology can give an indication of the theme s changing exposure to different regions. In the 12 months between the index rebalances the following key changes emerged.

3 Country allocations shift to Asia (chart 1) The index shift towards Asia was largely driven by and increasing number of stocks fulfilling the revenue requirements in Japan and Taiwan. Despite the reduction in the percentage allocation to the US, the number of stocks remained the same. Europe was the only region where the number of stocks fell (from 23 to 20). M&A was a factor in this reduction with German robot manufacturer, Kuka, and ARM a UK-based chip manufacturer being taken over by Asian companies. Chart 1: regional exposure 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Asia Pacific Latam Europe North America Jun-16 Jun-17 Market cap exposure increase in large caps (chart 2) Despite the index broadening, the relative allocation to large caps has increased on a relative basis. Many stocks aligned to the theme performed strongly over the 12 months between rebalances meaning that a number of stocks have moved up the market cap spectrum, rather than new additions to the index increasing these allocations. In % of the stocks in the fund had market capitalisations of between $1-2.5B, this fell to less than 15% following the 2017 rebalance showing that much of the growth came from stocks with these characteristics. 30.0% Chart 2: Market cap exposure 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% >$10B $5B-$10B $2.5B-$5B $1B-$2.5B $0.5B-$1B <$0.5B Jun-16 Jun-17

4 Sector allocations machinery on the way up Machine manufacturing was the main beneficiary of the rebalance with a 2.5% increase in allocation with Asian companies most represented in this increase. M&A was a factor in the software space e.g. Netsuite, a US software services company focused on providing financial, operations and customer relations solutions to medium-sized businesses was acquired by Oracle. The new allocation to Computer Hardware and Storage and the reduction in communications equipment are directly linked. Samsung changed classification of from the latter to the former based on its revenue classification as determined by the Factset RBICS taxonomy. Chart 3: RBICS L3 sector exposure Software Semiconductor Manufacturing Semiconductor Equipment and Services Machinery Manufacturing Electrical Equipment and Power Systems Computer Hardware and Storage Communications Equipment Auto Retail 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0%

5 3. Insights from our PM At BlackRock we believe rigorous risk analysis is critical to the delivery of superior indexing and is an important aspect in the management of any physically replicating ETF. Scale, depth of resource and experience enable product efficiency and can lead to positive outcomes for investors in the funds. The istoxx Automation and Robotics index has a unique profile, containing constituents from across multiple countries (EM and DM), sectors and liquidity profiles. Given these complexities, a globally coordinated approach to trade implementation is essential to provide the most efficient outcome at the annual rebalance. Our portfolio management team utilises BlackRock s global footprint and deep knowledge to manage the trade from strategy design to execution. Pre trade analytics and proprietary risk modelling are essential to understand the dynamics of the rebalance and the interplay between the various risk drivers. Screening for stocks that have volatility concerns and monitoring upcoming corporate events that may impact risk around rebalance date forms the foundation for this. At BlackRock we are uniquely positioned to navigate these complexities, with experts ranging from FX and Trading specialists to a dedicated Index Research Team to understand benchmark methodology and data. For instance, traders with local expertise in Korea, Thailand and Taiwan with a focus on those particular markets. One aspect of a rebalance trade that is often overlooked is managing the hidden costs of FX trading. This is critical to funds that have exposure to emerging markets and requires specific expertise especially in markets that can be illiquid and opaque. Case study EM FX execution Generally, asset managers rely on their custodians for FX execution in Korea, Taiwan and Malaysia which can be inefficient (i.e. away from the index calculation point) and costly. By working closely with local brokers and counterparties BlackRock is able to execute FX in these markets on-shore through regional trading desks allowing far more flexible and efficient execution. Combining these capabilities in conjunction with PM knowledge and independent risk oversight gives BlackRock the ability to manage complex rebalance events effectively.

6 Appendix: Accessing the Robotics trend with an index vehicle Aided by advances in data availability, modern passive investment vehicles enable investors to achieve a focused yet broad exposure to long term thematic investments. NVIDIA Corporation, a constituent in RBOT, is a world leader in artificial intelligence and machine learning. The information below demonstrates how the innovative methodology captures specialised companies such as this. Index methodology The istoxx FactSet Automation & Robotics index ( the index ) aims to provide an equity benchmark to the performance of companies focused on developing technologies that include manufacturing robotics, driverless cars, 3D printing and Artificial Intelligence i.e. automation and robotics. The starting universe is the STOXX Global Total Market Index ( the parent index ) which constitutes large, mid and small capitalisation companies across both developed and emerging markets and covers 95% of the free-float market cap of companies globally FactSet Revere s hierarchy methodology identifies companies generating more than 50% of their revenue from one or multiple pre-defined sectors Figure 4: Example of FactSet revenue classification hierarchy NVIDIA Corporation 1. Technology 2. Electronic Components and Manufacturing 3. Semiconductor manufacturing 4. Specialised Semiconductors 5. Multimedia Semiconductors 6. Video Multimedia Semiconductors The index uses the Revere Business Industry Classification System (RBICS) that classifies a company s revenues across six increasingly granular levels, known as hierarchies RBOT only incorporates companies with sufficient revenue generation at the most granular level, from a pre-determined list of relevant sectors to help ensure the purity of exposure to the robotics and automation sector These companies also need to show a 3-month average daily trading volume (ADTV) greater than one million EUR and have a minimum free-float market capitalisation of more than 200m Each constituent is equally weighted within the index At the annual rebalance, these individual steps are re-run For incumbent securities, the minimum revenue threshold drops to 45% in order to minimise turnover The minimum number of constituents is 80

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