This Robotics ETF Is Poised for 400% Growth in the Next 10 Years

Just a few years ago the industrial automation industry was having something of a moment... and not its first. As had been the case several times since the 1980s, advancements in computer technology allowed factories to increase their productivity and/or lower their costs. It was a familiar evolution for the business, and one that would remain in place until the next upgrade cycle.

Then something amazing happened. The advent of artificial intelligence (AI) surpassed all expectations of what was considered possible just a few years earlier. Truly autonomous robots are now working in the world's factories and warehouses, as well as serving the logistics/delivery and agriculture markets. They're even doing domestic chores in people's homes. Anywhere that physical work is being done, in fact, robots are increasingly doing that work. That's why an outlook from Roots Analysis suggests the global robotics market is poised to grow from last year's $65 billion to $376 billion in 2035, jibing with predictions from Imarc, Global Market Insights, Precedence Research, and others.

This of course means opportunity for investors.

The chief challenge? The robotics business is as crowded as it is complicated. Navigating it well enough to identify its top stocks is a tall order to be sure. Most investors would be best served by owning an exchange-traded fund that reflects the performance of the entire industry. And one name stands above the rest. That's the First Trust Nasdaq Artificial Intelligence and Robotics ETF (NASDAQ: ROBT).

First Trust's Robotics ETF is different

Don't panic if you already own stakes in more popular robotics ETFs like the Global X Robotics & Artificial Intelligence ETF, the iShares Future AI & Tech ETF, or the Robo Global Robotics and Automation Index ETF. You're hardly positioned wrong. All three of these funds hold the artificial intelligence must-haves like Nvidia, along with most of the robotics should-haves like UiPath or Symbotic.

First Trust's Nasdaq Artificial Intelligence and Robotics ETF, however, is different from its next-nearest alternatives in one very important way. That's in how it's constructed. Based on the Nasdaq CTA Artificial Intelligence & Robotics index, this fund isn't imbalanced by virtue of being cap weighted, but is instead well balanced because it's equal weighted.

OK, it's not exactly equal weighted. Companies that predominantly design or create robotics and AI solutions (like UiPath or Symbotic) make up 60% of the fund's portfolio, while companies that only make components used by the robotics and artificial intelligence industry account for 25% of the fund's allocation. The other 15% are companies with exposure to the market, but AI and robotics aren't their core business. Within those three categories though, selected stocks are owned in equal-sized stakes.

End result? It's a rarity for any single stock to make up more than 2% of the fund's entire pool of assets, and when it does happen, the quarterly rebalancing takes care of it.

Image source: Getty Images.

Perhaps more important to investors, however, is the fact that ROBT provides plenty of actual exposure to robotics stocks like UiPath, Symbotic, and Japan's FANUC (Fuji Automatic Numerical Control) without overloading you with artificial intelligence mega-companies like Nvidia and Broadcom; neither name makes up more than 1% of ROBT's value.

If you want more than a little exposure to Broadcom and Nvidia, you can still own them outright, or through any number of other exchange-traded funds that hold technology stocks; ROBT simply offers you a way of investing in the entirety of the robotics business that consists of a bunch of somewhat obscure companies.

It's reasonably cost-effective, too, with an annual expense ratio of 0.65%.

At the turning point

If you're planning on doing some of your own due diligence on the First Trust Nasdaq Artificial Intelligence and Robotics ETF before diving in, be forewarned... this fund has underperformed the S&P 500 (SNPINDEX: ^GSPC) as well as the Nasdaq Composite (NASDAQINDEX: ^IXIC) for the past few years. That could be concerning.

Just keep the extraordinary circumstances of the past few years in mind. They've been led by a small handful of AI-related companies that weren't exactly robotics names. Indeed, the actual robotics industry is still working to integrate recent AI developments into its wares and commercialize the resulting solutions.

That is starting to happen in earnest though. For instance, just this year Hong Kong-based Neptune has experienced soaring demand for its AI-powered robots that clean and scrape the sides of oceangoing ships 3 to 5 times faster than humans could do the job.

Even more notably, this is also the year humanoid robots are starting to quietly replace real human workers en masse, at least in environments like warehouses and factories. Although the leading company in this sliver of the business doesn't disclose too many details about its business, Agility Robotics announced last month that its "Digit" bots have now collectively moved more than 100,000 totes. The company has also confirmed that at its current peak capacity it can manufacture as many as 10,000 humanoid work robots per year. That's not a small number.

We're at the turning point where AI-powered robots are actually dependable enough and cost effective enough to merit their widespread deployment. The bullish predictions of the industry's growth aren't just hopeful thinking -- they're a recognition of what awaits now that robotics companies have figured out exactly how to shape and then integrate cutting-edge AI into their tech.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia, Symbotic, and UiPath. The Motley Fool recommends Broadcom and Fanuc. The Motley Fool has a disclosure policy.