Manufacturing like we know it today will change dramatically throughout the next decade. We are on the verge to break into a new industrial revolution – industry 4.0. New advanced manufacturing technology will change how manufacturing is done. Smart manufacturing will affect both physical and digital processes though analytics, artificial intelligence, cognitive technologies, and the Internet of Things. New manufacturing intelligence will better every aspect of business and make normal businesses into digital enterprises. These interconnected enterprises will be capable of more informed decision making, and through the use of data, drive intelligent action in the physical world. There are multiple reasons behind using big data and artificial intelligence to spur growth in any given company, reasons include:

• Create a fully connected and flexible system

  • The increased inflow of data from operations and production systems combined with the use of AI and simulations will make manufacturing more flexible and easy to adapt to new demands.

• Increase efficiency 

  • When combining data from different entities of a business and analysing them as a whole rather than separating them, simulations and AI can quickly determine new and better ways of manufacturing. This will increase efficiency in every department of a company – not only manufacturing. 

• Asset efficiency

  • Through the continuing analysis of data smart manufacturing will reveal corrective optimization processes that will lead to lower asset downtime, optimized capacity, and reduced change over time.

How will Smart Manufacturing shape the future? 

All sectors will eventually be affected by smart manufacturing examples would be healthcare, industrials, and consumer staples. Companies in the healthcare sector are researching the uses of smart manufacturing technologies through 3D printing, microchip modeling clinical trials, and hybrid operating rooms. All of which are new found technologies being implemented into healthcare. The industrials sector includes companies that work in aerospace, machinery, defense, and fabrication. Smart manufacturing will be implemented into the everyday manufacturing that these companies provide to connect all aspects of the production line. The consumer staples sector will use data to quickly adapt to new demands, improve service, and lower overall costs. These examples show how all sectors are affected through smart manufacturing and more specifically the collection of data and the analysis of this data. These improvements will help the manufacturing of the goods through quantity control and dramatically cut down on costs. However, not all changes are present, and earlier phases of smart manufacturing will provide more present investing opportunities. 

The processes of incorporating smart manufacturing into a sector or a single entity can be boiled down to three specific phases:

The most vital step for any business trying to take advantage of smart manufacturing is gathering big data and learning to analyse it. These are also the most present and first phases of smart manufacturing and it provides us with great investing opportunities. More specifically the companies that will provide these services are categorized under the sector of information technology. To find these opportunities the following questions need to be answered are: 

• How will companies gather and collect the data? 

• How will companies store the data?

• What specific tools will be used to analyse the data?

• What are the risks associated with this?

Information technology is the first sector that is not only utilizing the data collection and production methods but also providing the research and technology to do so. The Information technology sector consists of companies that are manufacturing electronics as well as creating the technology and tech based services. For companies to make the shift to smart manufacturing it could mean implementing several digital and physical technologies. These can include robotics, advanced materials, augmented reality, high performance computing, analytics, AI and cognitive technologies. Implementing these technologies will allow companies to collect data, analyze the data, connect assets and facilities, and digitize business operations.

Companies in the Information Technology sector provide a method of data collection using microchips in integrated circuits and sensors to create a system of ongoing data collection. Data collected in enough volume and scope can provide a look into operational and asset inefficiencies. From this massive load of information gathered, it will need to be stored and managed. Information technology companies have the technology and means to store the data through cloud services. Once the information is gathered and stored, it can be analyzed through predictive analytics, augmented reality simulations, and big data analytics software.  Offering solutions for connectivity and optimization of assets allows the Information Technology sector to be leading the convergence to smart manufacturing. 

There are some risks associated with complete connectivity. In a fully connected environment the factory will be more susceptible to cyber-attacks having a widespread impact and may be increasingly difficult to protect against. This vulnerability seems to increase when the smart factory scales outside the factory and begins to include suppliers, customers, and other facilities. This being said, cybersecurity will be an integrated part of the development and growth of smart factories. It is then crucial that the importance of cybersecurity is not neglected when discussing smart manufacturing. Given that the two goes hand in hand, cyber- security might provide investing opportunities too. 

Where should we invest?

With the research provided above the case can be made that every company trying to take advantage of smart manufacturing will need a few specific things: 

1. Tools to gather and collect data 

   1. 1. Microchips, sensors, semiconductors 

2. Storage & analysis of the data

   1. 1. Cloud storage

      2. Artificial Intelligence

      3. Simulations

3. Protection

   1. 1. Cybersecurity 

The two main drivers of growth in the field of SM are going to be gathering/collecting the data and storage/analysis of the data. However, cybersecurity is going to play an important role in securing this growth. 

Every company that takes part in smart manufacturing will have to incorporate the tools described above. This is why we have chosen only to invest in these areas, rather than trying to find a smaller manufacturing company that might (or might not) take advantage of the new found opportunities of smart manufacturing. 

To get full exposure to the theme of smart manufacturing we have chosen the following allocation: 

40 % into the “Collection of Data”

50 % into the “Storage & Analysis of the Data”

10 % into “Cyber security”

Investing philosophy 

Laker Asset Managements has limited funds and follows a conservative investing strategy this entails lowering risk as much as possible. While keeping this in mind, it can be argued that larger and more established companies provide lower risk. Standard deviation, volatility, and other risk-measures tend to be lower with larger established companies. Smaller and newer companies might provide a stronger incentive for growth but there is also higher risk involved with investing in these. Another argument for choosing bigger companies is that we are seeing more mergers and acquisitions like CVS buying Aetna, Amazon buying Whole Foods, Qualcomm trying to buy NXP, Broadcom trying to buy Qualcomm, and AT&T buying Time Warner. These companies are buying smaller companies to increase growth and revenue. Therefore, we will disregard looking at smaller companies, and focus on bigger more established companies. 

Investing in “Collection of data”

When further researching the microchip production industry we found a multitude of companies. In order to explore all of our opportunities in this industry we have chosen to utilize an ETF. An ETF lends us a large variety of companies allowing us to additionally diversify our portfolio and limit the risk we acquire. 

The top 10 holdings of iShares PHLX Semiconductor ETF (SOXX) account for 59.97% of their total assets. These holdings include large cap companies such as NVIDIA Corp, Texas Instruments Inc, Intel Corp, Qualcomm Inc., Broadcom Ltd, and several others. These large cap companies can provide a multitude of services encompassing the chip production, data collection, data storage, analysis and connectivity in one place. For example, NVIDIA, which is the top holding with 9.15% of the assets, provides not only microchip production but NVIDIA GPU Cloud, deep learning artificial intelligence software, simulation and high performance computing applications. The iShares ETF overweights its holdings in these large cap companies compared to SPDR and PowerShares. SPRD allocates about 3% of its holdings to each company including mid cap companies and PowerShares only slightly overweights the large cap companies while still maintaining a larger percent of assets in mid cap companies. Our investment philosophy is to limit risk by disregarding smaller companies and shifting our focus to larger ones. This philosophy also lets us invest in several industries within smart manufacturing. While comparing the risk-adjusted return measures for the individual ETFs, it is clear that iShares is outperforming the others. Because of the above stated reasons? The SOXX iShares ETF is the best choice for our portfolio? matches our needs and philosophy the best compared to SPDR or PowerShares. (review)

Investing in “Storage & Analysis of Data”

ADD SECTION 

Investing in “Cybersecurity”

Cybersecurity is the protections against unauthorized use of electronic data. When considering smart manufacturing as an overall theme, one of the first major players will be the cybersecurity firms. These firms will be integrated into every step of transforming a traditional factory into a smart manufacturing facility and ongoing operations thus lending investment opportunities. 

Due to our investment philosophy we have chosen to pursue an ETF in the cybersecurity sector as well. Investing in a cybersecurity ETF completes our combination of the three main items each company taking advantage of smart manufacturing will need while also allowing us to control part of the risk. The two main cybersecurity ETFs are HACK and CIBR. HACK….. CIBR….. Given this information, the argument can be made for our investment efforts to be put towards…… 

Cibr takes lower risk, only taken companies over $250 mill, and needs