We are on the cusp of momentous change as profound and far-reaching as the industrial revolution, the invention of the internal combustion engine or the information age that started in the late 20th century.
This coming technological revolution concerns the rise of robots following breakthroughs in automation, advances in computer processing power and the development of artificial intelligence. Automated devices are now capable of so much more than the basic, repetitive chores they are most often associated with on manufacturing production lines. They can now see, touch, even recognise speech, allowing them to perform tasks that would have been unimaginable until recently. As their sophistication deepens, the costs are coming down. In fact, they are likely to transform a great many features of human life, at work and in the home.
Some say we should fear the rise of automation, warning that this will put people out of work, decimate the middle classes and take food out of the mouths of families. This is an understandable concern, but ultimately short sighted. Previous technological revolutions, like the birth of the internet, for example, created work rather than destroyed it.
To be sure, revolutions such as this are disruptive to existing patterns of employment, altering the division of labour, but the resulting gains in productivity and efficiency offer new opportunities. The process is ultimately creative rather than destructive.
To take another obvious example from history, the development of internal combustion engines in the 20th century, and indeed the development of production lines by Henry Ford, revolutionised transport at the cost of putting out of work most blacksmiths, who had serviced horse-powered transport. But no one would argue that the net effect of these advances had a negative economic impact. Job opportunities increased, within the new industry, servicing it and in areas that benefited hugely from the availability of the cars that it produced. Arguably, therefore, we can expect with some confidence that robots will complement human labour, rather than replace it.
The benefits to society and the economy are potentially huge as they offer tantalising opportunities to grapple with the biggest problems we face today.
Technologies such as 3D printing mean customisation will no longer be the expensive preserve of a wealthy elite. Robots could also optimise energy use by bringing production closer to customers, as well as cutting down on waste, helping address the problem of increasing resource scarcity. Then there is the economic benefit of optimising production in factories, helping industries stay competitive, all of which will trickle down to nurture greater prosperity.
In sum, this is huge and so are the opportunities to harness the benefits by investing in the revolution now. From an investment perspective, valuations of robotics stocks currently stand at reasonable levels. Back-tests based on a portfolio of robotics stocks show an attractive risk return profile compared with the global equity market in the past five years, as well as based on projections for the next five years. They also reveal a low overlap between a robotics portfolio and standard global equity indices, meaning that investment in robotics can offer diversification for investors with global equity exposure.
Karen Kharmandarian and Peter Lingen are senior investment managers on the Pictet Robotics Fund.