The ProShares S&P Kensho Smart Factories ETF Invests In The Future of Manufacturing

The economy has come roaring back following the Covid-19 pandemic, with consumers rushing to buy cars, appliances, home goods and so on. Overall, U.S. retail sales are up double digits compared to 2019 levels. This has led to shortages, particularly as the pandemic caused bottlenecks in global supply chains. And as if that double-whammy wasn’t enough, labor shortages have strained multiple sectors.

Male and Female Industrial Engineers in Hard Hats Discuss New Project while Using Laptop. They Make Showing Gestures.They Work in a Heavy Industry Manufacturing Factory.
Source: Gorodenkoff via Shutterstock

Put another way, it’s been a transformative year for the manufacturing industry. Factory managers have to get more output from fewer resources. This makes it imperative that industrial firms improve their efficiency. When its hard to keep supply chains full and skilled workers are in scarce supply, companies have to consider reinventing their approach.

One of the most compelling approaches would utilize robotics, automation and other labor-saving devices. It’s impossible to take labor for granted anymore. The pandemic and ensuring economic shock should serve as a wake-up call on that front. Companies need to prioritize streamline manufacturing processes with digital solutions.

Thus, we have the ProShares S&P Kensho Smart Factories ETF (NYSEARCA:MAKX). It seeks to help investors profit from the  accelerating trend toward robotics and automation in the industrial sector.

What Is The Kensho Smart Factories ETF?

Kensho is a word from the Japanese Zen tradition that refers to insight or awakening of conscience. Specifically, the S&P bought a technology firm named Kensho that focuses on using artificial intelligence (AI) and big data to modernize the financial services industry. The S&P has used the Kensho platform to launch a series of indices including the S&P Kensho Smart Factories Index, which tracks the performance of companies involved in helping to digitalize the manufacturing process.

Now interested investors can invest in MAKX, which seeks to mirror the performance of that Kensho index. The Smart Factories ETF holds about two dozen firms spanning a range of approaches to automation. The ETF’s top holding is 3D Systems (NYSE:DDD), an industry leader in 3D-printing. 3D-printing could be a major tool in helping alleviate supply chain problems: being able to manufacture key parts on-site would have resolved a number of 2021’s biggest logistical roadblocks.

The ETF has large positions in companies directly focused on systems and tools for automation, such as Rockwell Automation (NYSE:ROK). These systems help improve efficiency in key industries such as food/beverage, life sciences, and e-commerce.

MAKX also holds companies that produce software for manufacturing or industrial design. For example, it has shares in AutoDesk (NASDAQ:ADSK) which makes software for construction, engineering, and 3D design. This is a vital tool for building all sorts of intelligent industrial solutions. In particular, Autodesk has software to help manage 3D printers, making it a supplier to other players within this industry.

As you can see, the Smart Factories ETF gives its shareholders a broad range of exposure to the automation and robotics movement.

A Bright Decade Ahead For Smart Factories

The Kensho Smart Factories ETF is perfectly situated to benefit from several key megatrends that should last throughout the 2020s. The first of these is environmental, social and governance (ESG) investing. Increasingly, investors want to make a positive impact in the world while also making money.

Smart factories are a great way to ride that trend. Improving efficiency on the shop floor is good for the environment. More and more companies are focusing on waste reduction to improve their ESG scores, and robotics and efficiency software are a great tool toward that end.

For another, the pandemic showcased some vital concerns with the global supply chain. It no longer seems sound to rely on globe-spanning logistics for the manufacture of many vital goods. There have also been serious human rights concerns about child labor and other unsettling practices in some countries. Smart factories should allow industrial firms to produce goods at affordable prices in a more reliable and human rights-affirming way.

MAKX Fund Details

MAKX currently charges 0.58% in annual operating expenses, which seems fair for exposure to such a specialized set of industrial and technology companies.

The ETF debuted at the end of September, and thus doesn’t have a long performance track record. However, it is off to a strong start; shares are up 4% so far in October.

As far as fund make-up goes, the average market capitalization of holdings is around $25 billion each. This means that this ETF owns a lot of mid-sized companies which still have plenty of room to grow. That should give it a leg-up versus other tech funds which tend to be more concentrated in large slower-moving firms. The fund has 83% of its capital in American holdings, however it also offers some exposure to foreign countries such as Switzerland and Israel.

Finally, it’s worth considering that the fund’s P/E ratio is 29. At first glance, that might not seem especially cheap. However, given the far above-average growth prospects for the industry, that could be a good entry point. Particularly given the valuation multiples for software companies right now, 29x earnings for an ETF with a big chunk of automation software holdings is quite reasonable.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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