U.S. investors see more automation, not jobs, under Trump

When Donald Trump criticized United Technologies Corp’s in November for its plan to move some 800 jobs to Mexico, the parent-company made a swift decision to keep the factory in Indiana. Yet, the move did not translate into saving jobs. Instead, the company decided it would move toward automation as a way to cut costs.
"We’re going to make up [the] $16 million investment in that factory in Indianapolis to automate, to drive the cost down so that we can continue to be competitive," chief executive Greg Hayes said on CNBC last month. "What that ultimately means is there will be fewer jobs."
Swapping robots and software for human labor has underpinned much of the productivity gains in the United States over the last 25 years. Now, with a greater political push to keep factories at home, investors are betting that automation will gain speed in industries ranging from auto manufacturing to chicken processing to craft beer breweries.
The big winners so far include Rockwell Automation Inc (ROK.N), General Electric Co (GE.N) and Cognex Corp (CGNX.O), which have seen jumps in fund ownership of 80 percent or more in the current quarter compared with the previous quarter, according to a Reuters analysis of Morningstar data.
The ROBO Global Robotics and Automation Index ETF is up 7.5 percent since Election Day, or about 15 percent more than the S&P 500 index, after underperforming the broad market for the majority of last year. Its largest holdings include cleaning products maker iRobot Corp (IRBT.O), Japanese factory automation company Fanuc Corp< 6954.T>, and drone aircraft company AeroVironment Inc (AVAV.O).
But the push toward automation could also cut into the number of jobs saved or created in the United States, undercutting Trump’s boast in a news conference last Wednesday that he would be "the greatest jobs producer that God ever created."
Declining costs of technology are expected to accelerate the growth of robotic manufacturing. Some 80 percent of companies that plan to cut jobs in the next year expect to partially replace workers with automation, according to a survey of chief executives by PwC released Monday.
At the same time, developments in fields ranging from barcodes to digital measurement tools are allowing companies to hire fewer workers and reduce the time it takes to bring their products to the market.
Brian Smoluch, a fund manager at the Portland, Oregon-based Hood River Small-Cap Growth fund (HRSMX.O), has been buying shares of Digimarc Corp (DMRC.O) because of its so-called invisible barcodes that speed up scanning of packages.
"If it takes a nanosecond to scan something, it allows a retailer to have fewer people at a checkout counter and makes self-checkout an easier proposition," he said. That said, the $300 million market cap company is a "high-risk, high-reward stock" because its success depends on companies adopting its technology over rivals.
Eric Marshall, a fund manager at Dallas-based Hodges Capital, has been buying shares of digital measurement company FARO Technologies Inc (FARO.O) and kitchen equipment maker Middleby Corp (MIDD.O).
Faro, for instance, creates three-dimensional measuring tools used in aerospace and automotive manufacturing. Shares of the company are up 18.8 percent since Election Day, triple the 6.3 percent gain in the broad S&P 500 index.
Middleby, meanwhile, recently introduced robots which can prepare French fries as quickly as a human line cook, saving labor costs and improving reliability. Shares are up 12.8 percent since Election Day.
"As labor costs go up you’re going to see more automated kitchens within fast-casual restaurants, and Middleby is one of the key innovators in that industry," Marshall said.
Republicans are likely to push tax policies that provide incentives to manufacture goods in the United States, regardless how the work is done, analysts say.
The result could be that there are more goods made at home, without a significant reduction in the unemployment rate, which is currently at 4.7 percent as of December.
"There could be a manufacturing renaissance in this country, but most of the work will be done by automation, with current workers retained to do value-added functions," said Nicholas Heymann, analyst at William Blair who covers General Electric and expects it to be a boon to the company’s automation business.