ROBT ETF: The Tip Of The Stock Market Correction Spear

All your base are belong to us. – Zero Wing.

The First Trust Nasdaq Artificial Intelligence and Robotics ETF (NASDAQ:ROBT) has been a beneficiary of AI mania, but manias end.

Before we get into broader market implications, let’s look into ROBT itself. ROBT seeks to track the Nasdaq CTA Artificial Intelligence and Robotics Index℠. The objective is to replicate the performance of companies engaged in the AI and Robotics sectors. To achieve this, the ETF invests at least 90% of its net assets in common stocks, and depositary receipts included in the Index.

The Index classifies companies into three categories – Engagers, Enablers, and Enhancers.

• Engagers are companies that design, create, integrate, or deliver robotics and AI products, software, or systems.
• Enablers develop the building block components for robotics or AI.
• Enhancers provide value-added services within the AI and Robotics ecosystem.

Each security within the Index must fulfill certain prerequisites like a minimum market capitalization of $250 million, a minimum three-month average daily dollar trading volume of $3 million, and a minimum free float of 20%.

The Index is rebalanced quarterly and reconstituted semi-annually. The engager category receives 60% weightage, enablers 25%, and enhancers 15%. The selected companies within each category are weighted equally.

Holdings of the ROBT ETF

The ROBT ETF comprises an array of companies primarily engaged in the technology sector. Its top ten holdings account for just above 20% of the ETF, with no single stock accounting for more than 2.25% of the entire portfolio. Good diversification here makes it a good proxy for excitement in the AI and robotics space broadly. Note this is NOT a Nvidia (NVDA) play – so I find the fund an interesting one to watch for sentiment.

In terms of sector exposure, Information Technology dominates.

Geographically, the United States has the highest representation at 50.09%, with Japan, Israel, France, United Kingdom, Canada, China, Norway, Cayman Islands, and Sweden making up the rest.

ROBT ETF Performance

Believe it or not, this fund has been a laggard relative to big-cap tech (QQQ) and the S&P 500 (SPY) itself, likely due to performance headwinds from small-caps and international stocks. For all the hype around AI and robotics, the performance doesn’t reflect it.

10. ROBT ETF: A Balanced Investment Option

Is the future full of AI and robotics? Sure! I’ve never once countered the argument that AI will have all kinds of implications on productivity and efficiency in the long-term. But ROBT is a cautionary tale around narratives, and is a reminder that stocks can give back months of gains in just a few short months. I maintain my belief that conditions favor a stock market accident in the near-term. We remain at a very critical juncture for proponents of a continued melt-up. If the AI narrative is under attack, then the entire stock market likely falls given that was the fuel that pushed things higher since May of this year.

You can make a lot of money in manias.

The question is can you keep it.

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