Document title
Robotik, KI, ESG
16. Oktober, Frankfurt
Innovation Day
Teil 1: 09:30-11:30
Robotik-/KI-Frühstücksbriefing
Document title
Willkommen
Heike Fürpaß-Peter,
Head of Sales Germany & Austria, Lyxor ETF
François Millet,
Head of ETF and Index Product Development, Lyxor ETF
Document title
Präsentationsunterlagen auf:
www.lyxorETF.de/InnovationDay
WITH THE “RISE OF THE ROBOTS” INDEX
TIME TO INVEST IN ARTIFICIAL INTELLIGENCE (AI)
D A N I E L F E R M O N
H E A D O F S G T H E M A T I C R E S E A R C H
C L A S S I F I C A T I O N
O C T O B E R 2 0 1 8
With thanks to:
Martin Ford, Author “Rise of the Robots: Technology and the Threat of a Jobless Future”
Societe Generale (“SG”) does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that SG may have a
conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment
decision. PLEASE SEE APPENDIX AT THE END OF THIS REPORT FOR THE ANALYST(S) CERTIFICATION(S), IMPORTANT DISCLOSURES AND
DISCLAIMERS. ALTERNATIVELY, VISIT OUR GLOBAL RESEARCH DISCLOSURE WEBSITE
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AI: FROM DREAM TO REALITY
Source: SG Cross Asset Research/Thematic
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AI MAIN TRENDS
AUTOMATION AND ROBOTICS
▪ Field of study that creates programs able to complete tasks automatically.
▪ It reduces or eliminates the intervention of humans.
▪ Revenues in 2016e: $250-600m.
IMAGE RECOGNITION
▪ Field of study that gives a machine the ability to process, understand, and recognise what it is seeing.
▪ Revenue in 2016e: $100-250m.
MACHINE LEARNING
▪ "Field of study that gives computers the ability to learn without being explicitly programmed” A. Samuel.
▪ Revenue in 2016e: $150-350m.
SPEECH RECOGNITION
▪ Field of study that teaches to machines how to communicate with humans.
▪ Revenue in 2016e: $150-300m.
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AI AN EXPONENTIAL GROWTH MARKET
Source: SG Cross Asset Research/Thematic, Statista
AI is widely perceived as a promising
market: revenues are likely to grow
exponentially.
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KEY TECHNOLOGIES: DEEP LEARNINGTHE PRIMARY FOCUS OF CURRENT AI RESEARCH AND DEVELOPMENT
Neural Networks
Dramatic breakthroughs over the
past decade
No investment in dedicated chip architectures
Significant opportunities for future innovation
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KEY TECHNOLOGIES: ROBOTICSROBOTS ARE BECOMING MORE DEXTROUS, FLEXIBLE AND AFFORDABLE
Industrial Perception
3D Machine Vision, Dexterity
Moves up to 1 box every second
Never tires; no injuries
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KEY TECHNOLOGIES: SOFTWARE AUTOMATIONDRAMATIC SAVINGS IN WHITE COLLAR LABOR & FEWER ERRORS
Source: Hackett Group, Wall Street Journal
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AI CHALLENGES: DEEPENING INEQUALITIESU.S. PRODUCTIVITY VS COMPENSATION
Source: US: Economic Policy Institute; UK: HM Treasury & Office of National Statistics
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AI CHALLENGES: DEEPENING INEQUALITIESLABOR’S SHARE OF NATIONAL INCOME
Source: Loukas Karabarbounis and Brent Neiman and Louis Morel (Bank of Canada)
United States Japan
China Germany
Canada
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AI CHALLENGES: DEEPENING INEQUALITIESU.S. JOBLESS RECOVERIES AND POLARIZATION
Source: Bureau of Labor Statistics, St. Louis Federal Reserve
U.S. Recessions – Months for Employment to Recover
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AI CHALLENGES: DEEPENING INEQUALITYMACROECONOMIC IMPACT / CONSUMER DEMAND
Machines do not consume
Only people and governments provide final
demand for the economy
Secular stagnation?
Challenges to top-line growth may increase the
incentive to invest in efficiency-improving
technologies, make the AI/robotics sector relatively
attractive
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AI CHALLENGES: SECURITY, TRANSPARENCY AND PRIVACYAUTONOMOUS SYSTEMS WILL PRESENT NEW TYPES OF RISK
Security
Autonomous systems, such as self-driving vehicles, could be susceptible to cyber attack or hacking. The same is
true for critical infrastructure that relies increasingly on AI. Securing these systems against attack will require the
development and deployment of powerful AI-based security solutions. In other words, “white hat” AI will need to
be better than “black hat” AI. This will create a massive opportunity for innovation and investment.
Transparency
Machine learning systems (especially deep learning neural networks) typically operate as “black boxes.” Even the
engineers who create these systems cannot necessarily understand how they arrive at conclusions. This is a major
problem in areas like regulation, criminal law or employment decisions, where a fair, transparent process is essential. If
bias exists in the data processed by a machine learning algorithm, it can manifest in outcomes. Research is underway to
build AI systems that can explain how they reach conclusions; this also represents a significant opportunity.
Privacy
AI is already being used by authoritarian governments to monitor and repress public speech. Large technology companies
also collect vast amounts of data on individuals, and this inevitably leads to privacy concerns. It is likely that political and
regulatory challenges will arise in the near future.
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AI OPPORTUNITIES: ADVANCES IN SCIENCE AND TECHNOLOGYINTELLIGENCE IS THE ULTIMATE RESOURCE
Advancing artificial intelligence will be deployed across the board and will likely result in new breakthroughs in science and
medicine, as well as in critical technology areas like energy and transportation. Ultimately, it should help us to solve some of
humanity's most pressing challenges, including climate change and an ageing population.
AI and robotics can improve business efficiency and management decision-making, and lead to higher profitability, as well as
lower-cost products and services, and entirely new markets.
Source: SG Cross Asset Research/Thematic
"Our goal is to first solve intelligence, and
then use that to solve everything else.“
- Demis Hassabis, founder Google DeepMind
THE RISE OF THE ROBOTS INDEX
An effective way of investing in AI
Daniel Fermon
Head of SG Thematic Research
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WHO COULD BENEFIT MOST FROM AI
Source: SG Cross Asset Research/Thematic, PwC
The $15.7tn that AI could bring to the global economy by 2030 is likely to be allocated as shown below:
North
America: + $3.7
trillion
DevelopedAsia: + $0.9
trillionLatin America:
+ $0.5 trillion
China:
+ $7 trillion
Southern Europe: + $0.7
trillion
Northern Europe: + $1.8
trillion
Africa, Oceania and other Asian Markets
+ $1.2 trillion
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AI IS MAINLY CONCENTRATED IN NORTH AMERICA
Source: SG Cross Asset Research/Thematic
Geographic distribution of AI companies (2018e)
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AI ACTORS: TECHNOLOGY GIANTS CLEARLY LEAD THE MARKET
According to CB Insights, 250 companies
working on AI have been bought by tech giants
since 2012.
That trend seems to have accelerated lately,
with numerous deals closed between 2016
and 2017.
Last year alone, Apple bought Lattice Data (AI)
for $200m, Intel acquired Mobileye for $15.3bn,
and Facebook bought Ozlo.
Source: SG Cross Asset Research/Thematic, CB Insights, TechCrunch
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A UNIQUE STOCK SELECTION PROCESS FOR THE RISE OF THE ROBOTS INDEX (1)
Source: SG Cross Asset Research/Thematic
We track the development of AI thanks to:
1. Big data research
2. Martin Ford’s knowledge of the most recent
developments in AI and robotics
We have selected 210 companies that fit with this thematic. Thus, we
offer the largest investment universe compared with alternatives focused
on AI and robotics.
Employing this large sample, we have developed an algorithm based on three criteria that
balance small but promising companies with larger, more established names. Our index
thus offers strong diversification across AI/robotics leaders of all sizes and growth stages.
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STOCK SELECTION PROCESS (2)
Source: SG Cross Asset Research/Thematic
R&D Expanditureson net sales
SystematicSelection of Top Score Companies
3 Years Sales
Growth
Return on Invested Capital
150 Companies
Artificial Intelligence:
The Rise of Robots Index
Fundamental Step
QuantitativeStep: Z-Score
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STOCK SELECTION PROCESS (3)
Source: SG Cross Asset Research/Thematic
First criterion: R&D expenditures/net sales
We selected companies that invest heavily in R&D.
▪ Rationale: we consider R&D to be essential to sustained leadership in the fields of AI and robotics. Therefore, we
concentrated on companies that dedicate a large part of their profit to R&D.
Second criterion: return on invested capital
We focus on return on invested capital (ROIC).
▪ Rationale: we want to invest in companies that have demonstrated the ability to deliver real results.
Third criterion: 3y sales growth
AI being relatively recent, we try to identify companies with growing businesses.
▪ Rationale: we believe top-line growth is due partly to AI-related initiatives within the companies selected in our
universe and that robust growth will facilitate the continued R&D investment that is critical to AI/robotics innovation.
Systematic selection of 150 companies.
Out of a universe of 210 companies, 150 are selected and weighted depending on their Z-Score* to form the index.
We also included an ADV (average daily volume) filter.
* A Z-Score measures the distance between a value and the mean of the observed population.
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RISE OF THE ROBOTS PERFORMANCE (BACKTEST) VS EXISTING ETF ON AI
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RISE OF THE ROBOTS PERFORMANCE VS EXISTING ETF ON AI (SINCE INCEPTION)
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RISE OF THE ROBOTS INDEX COMPONENTS (TOP 25 COMPONENTS)*
*Weight at the last rebalancing in April 2018, Source: SG Cross Asset Research/Thematic
Bloomberg ticker Rank Ticker Company name RD/sales ROIC Sales growth Weight* Country FB UQ equity 1 FB UQ Facebook Inc 19% 25% 48% 1.03962% UNITED STATES
NVDA UQ equity 2 NVDA UQ NVIDIA Corp 18% 42% 29% 1.02798% UNITED STATES
7779 JT equity 3 7779 JT CYBERDYNE Inc 55% -2% 56% 1.00265% JAPAN
MZOR UQ equity 4 MZOR UQ Mazor Robotics Ltd 13% -14% 47% 0.98836% ISRAEL
INTU UQ equity 5 INTU UQ Intuit Inc 19% 47% 7% 0.94805% UNITED STATES
700 HK equity 6 700 HK Tencent Holdings Ltd 7% 19% 45% 0.92471% CHINA
6324 JT equity 7 6324 JT Harmonic Drive Systems Inc 5% 12% 32% 0.92057% JAPAN
CAVM UQ equity 8 CAVM UQ Cavium Inc 38% -3% 40% 0.90522% UNITED STATES
MU UQ equity 9 MU UQ Micron Technology Inc 9% 34% 13% 0.89916% UNITED STATES
BABA UN equity 10 BABA UN Alibaba Group Holding Ltd 9% 7% 49% 0.88751% CHINA
AMS SW equity 11 AMS SW ams AG 20% 7% 39% 0.87397% AUSTRIA
ADBE UQ equity 12 ADBE UQ Adobe Systems Inc 17% 19% 21% 0.87004% UNITED STATES
WDAY UQ equity 13 WDAY UQ Workday Inc 42% -13% 40% 0.86834% UNITED STATES
6414 TT equity 14 6414 TT Ennoconn Corp 9% 8% 97% 0.85610% TAIWAN
2382 HK equity 15 2382 HK Sunny Optical Technology Group Co Ltd 5% 34% 39% 0.85080% CHINA
3443 TT equity 16 3443 TT Global Unichip Corp 13% 21% 21% 0.84780% TAIWAN
ALGN UQ equity 17 ALGN UQ Align Technology Inc 7% 23% 25% 0.83608% UNITED STATES
CDNS UQ equity 18 CDNS UQ Cadence Design Systems Inc 41% 13% 7% 0.82955% UNITED STATES
6723 JT equity 19 6723 JT Renesas Electronics Corp 16% 12% -2% 0.82749% JAPAN
MANH UQ equity 20 MANH UQ Manhattan Associates Inc 10% 67% 7% 0.82256% UNITED STATES
6920 JT equity 21 6920 JT Lasertec Corp 8% NA 9% 0.81298% JAPAN
2379 TT equity 22 2379 TT Realtek Semiconductor Corp 27% 7% 10% 0.80780% TAIWAN
IPGP UQ equity 23 IPGP UQ IPG Photonics Corp 7% 19% 23% 0.80400% UNITED STATES
CY UQ equity 24 CY UQ Cypress Semiconductor Corp 15% -3% 54% 0.80283% UNITED STATES
NXPI UQ equity 25 NXPI UQ NXP Semiconductors NV 17% 6% 20% 0.79309% NETHERLANDS
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CONCLUSION: WHY OUR ETF CAPTURES AI BETTER THAN OTHERS
SG Cross Asset Research/Thematic
Three ETFs on AI and Robotics have already been in existence
since 2016
However, our approach brings many advantages:
More stocks: We hold at least half as many stocks again as our
major peers. We won’t hold more as this would risk diluting the
theme
More appropriately diverse: We capture AI’s spread beyond
Industrials & IT, but we don’t ignore the benefits & growth
prospects of hardware
More flexible: We add retail giants like Amazon and Alibaba to
capture AI’s impact on consumers, making this product unique
The Rise of the Robots Index is:
Better balanced
Better able to capture change
Better suited to evolve over time
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APPENDIX
Report completed on 2 Oct, 2018 17:25 CET
ANALYST CERTIFICATION
The following named research analyst(s) hereby certifies or certify that (i) the views exp ressed in the research rep o rt accu r a te ly reflect his or her or their personal views about any and all of the subject securities or issuers and (ii) no part of his o r he r o r the ir
compensation was, is, or will be related, directly or indirectly, to the specific recommendations or views exp ressed in this repo rt :
Daniel Fermon
The analyst(s) who author research are employed by SG and its affiliates in locations, including but not limited to, Paris , London ,
New York, Hong Kong, Tokyo, Bangalore, Frankfurt, Madrid, Milan, Geneva, Seoul, Warsaw and Moscow
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APPENDIX
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30TIME TO INVEST IN ARTIFICIAL INTELLIGENCE (AI) │ 12/10/2018 │
APPENDIX - DISCLAIMER
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32TIME TO INVEST IN ARTIFICIAL INTELLIGENCE (AI) │ 12/10/2018 │
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35
October 29, 2018
Introducing a new industry classificationHow we define the starting universe
Industrials
Aerospace & Defence,
Electrical Equipment,
Industrial
Conglomerates,
Machinery
3 main sectors
~1,400 companies
identified*
Information
Technology
Healthcare
Healthcare Equipment
& Supplies,
Life Sciences Tools
& Services
*As at December 2017.
Starting
universe
210 stocks*
Big data analysis
Scans for most relevant
companies
(188) e.g.
Amazon,
Schlumberger,
J.P. Morgan…
Exceptions from other
sectors added
Human touch
Annual quality control by
SG Thematic Research
and renowned futurist and
AI specialist, Martin Ford
(22)
Societe Generale’s classification of
Robotics & AI companies uniquely
recognises the broader impact of AI on
business and consumers
36
October 29, 2018
The Rise of the Robots IndexHow the index works
*As at December 2017.
R&D
expenditure
on net sales
Return on
invested
capital
3-year
sales
growth
ADV filter
► Stocks weighted
according to their
Z-scores
► Rules-based and
process-driven
► Rebalanced quarterly,
reviewed annually
Systematic approach, with
stocks scored for…Starting universe
210 stocks*Rise of the
Robots Index
Top 150 stocks
Z-scoring
37
October 29, 2018
More emphasis on AI than other like-for-like ETFsThe right balance could help future-proof your portfolio
Source for all data: Lyxor International Asset Management, as at 20/06/2018.
The Rise of the Robots Index
contains…
...giving you more access to the
megatrend and its
effects than other
like-for-like products
…& their
beneficiaries
Robotics
developers &
manufacturers
AI-focused
companies,
► In our view, a well-balanced exposure to robotics and AI can help future-proof
your portfolio because the application of AI offers greater return potential than
traditional robotics alone
► Our index is weighted more towards AI leaders (notably in the US and China) and
less towards robotics manufacturers (Japan and South Korea) than other like-for-
like products
► But we don’t ignore the benefits of robotics. After all, it is still a key growth engine
Geographical breakdown
38
October 29, 2018
More capable of capturing the impact of changeOur greater diversification takes you further than like-for-like products
Source for all data: Lyxor International Asset Management. Data as at 20/06/2018. The two peer indices
chosen are based on similar robotics and automation ETFs available in Europe
► More stocks : We hold at least half as many stocks again as our major peers.
We won’t hold more as it risks diluting the theme
► More appropriately diverse: We capture AI’s spread beyond Industrials & IT,
but we don’t ignore the benefits & growth prospects of hardware
► More flexible: We add retail titans like Amazon or Alibaba to capture AI’s
impact on consumers, making this product unique
Rise of the Robots Index
(BBG ticker: SGIXROBO)
iSTOXX FactSet Automation & Robotics Index
(BBG ticker: IXAROBU)
ROBO Global Robotics and Automation UCITS Index
(BBG ticker: ROBOT)
# stocks 150 102 87
% large caps 48.25% 26.79% 24.95%
% mid caps 26.83% 42.62% 29.52%
% small caps 24.93% 30.09% 45.11%
Of the 225 stocks found across the three like-for-like indices, 64 are unique to
the Rise of the Robots Index
Sector breakdown
39
October 29, 2018
Why choose Lyxor for Robotics & AI?3 reasons to buy
1Source: Lyxor International Asset Management, as at 02/10/2018.
More likely
to evolve
Industry expertise ensures our
ETF won’t get left behind
More capable of capturing
change
We look for the best AI stories,
but we don’t ignore hardware
UCITS ETF Bloomberg tickers Trading currencies Replication type AuM1 TER1
Lyxor Robotics & AI ROAI GY, ROAI IM, ROAI LN EUR, USD Synthetic €51m 0.40%
Better
balanced
The blend of robotics and AI helps
future-proof your portfolio
40
October 29, 2018
Important informationDisclaimer
*As at December 2017.
This communication is exclusively directed and available to Institutional Investors as defined by the 2004/39/EC Directive
on markets in financial instruments acting for their own account and categorised as eligible counterparties or professional
clients. This communication is not directed at retail clients. This document is issued by Lyxor International Asset
Management.
Some of the funds described in this brochure are sub-funds of either Multi Units Luxembourg or Lyxor Index Fund, being
both investment companies with Variable Capital (SICAV) incorporated under Luxembourg Law, listed on the official list of
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Luxembourg Law of 17th December 2010 (the “2010 Law”) on Undertakings for Collective Investment in accordance with
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résolution (the French Prudential Control Authority.
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