Robots are so hot right now.
Chief executives know it, Silicon Valley knows it and even robots know it (kind of). Investors naturally want to cash in on the excitement.
But their eagerness to buy anything with the word "robot" on it has created some bubbly price disparities - such as when vacuum cleaners earn the same premium as cutting-edge droids.
Another possible cautionary tale is German robot-maker Kuka and the exchange-traded fund (ETF) that wouldn't stop buying its shares.
The fund in question is the Global X Robotics & Artificial Intelligence ETF, or BOTZ, a basket of stocks compiled by Indxx. It has US$975.6 million in net assets and has delivered year-to-date returns of 56 per cent, outperforming the S&P 500 and Nasdaq. Its top-10 holdings have all gained in 2017, but Germany's Kuka has really paid off - up an incredible 170 per cent.
What's puzzling is that Kuka isn't a normal stock. It was taken over last year by China's Midea, which owns 94.6 per cent of the industrial robot manufacturer, according to Bloomberg data. With Norway's sovereign wealth fund owning another 2 per cent, there isn't much of Kuka left to trade on the market. More curious still is the speed at which Kuka's tiny slice of free-floating equity has risen. It surged 50 per cent in the past three weeks alone.
The reason might be something to do with BOTZ. As a passive fund, BOTZ is a kind of robot itself, blindly following its own investment rules. That makes it cheap as well as attractive. It re-balances its holdings once a year, and its mission is just to hew to an index. It doesn't try to outperform, or react to market spikes or crashes. As the fund says in its prospectus, it's entitled to keep holding on to stocks until the index determines otherwise. It's just following orders, like a machine.
And it looks like the machine just can't stop buying.
Bloomberg data shows that at the end of 2016, when Midea was finalising its acquisition of 37.6 million Kuka shares, BOTZ owned 1,425 shares. But since then, BOTZ's stake has ballooned to 284,576 shares, or 0.7 per cent, rising every quarter. It's the only buyer out there in size. In a filing dated October 23, the fund added 15,300 shares of Kuka. On that day, the trading volume in Kuka was 17,672 shares.
BOTZ is now a market unto itself.
Were BOTZ an active fund manager, you'd expect a good reason for all this: perhaps Midea will one day try to mop up minority stakes? Perhaps the growth opportunities in robotics are such that sucking up the equivalent of 87 per cent of the stock's daily volume will be worth it in the end? Even then, a client of BOTZ might wonder why the fund's estimated average cost per share for a tiny stake in Kuka was 25 per cent higher than the price Midea paid for a controlling one.
Yet, as an ETF, BOTZ may just be blindly performing its intended function. If it re-balances its holdings, stops buying, or starts selling, the result could be painful.
It's worth noting that not all ETFs would behave this way. The index provider ROBO Global, used by a rival robotics ETF, says it dropped Kuka from its automation index in 2016 when Midea took control, as per its own methodology.
Maybe the human touch isn't so bad after all.
Lionel Laurent is a finance and markets expert. He has previously written for Reuters and Forbes and also writes for Bloomberg