DIGITAL FORTUNES TEAM

LOUIS BASENESE CHIEF TECHNOLOGY ANALYST

GREG MILLER SENIOR TECHNOLOGY ANALYST

EXECUTIVE COMMITTEE

ROBERT WILLIAMS PUBLISHER, FOUNDER

Justin Fritz EXECUTIVE EDITOR

Martin Denholm EDITOR-IN-CHIEF, TECHNOLOGY

Marie Haughey COPY CHIEF

JANUARY/FEBRUARYVOLUME 01 NUMBER 01

IGITALORTUNES

PG. 02RISE OF THE MACHINES:

THE BIGGEST TECH REVOLUTION OF THE 21ST CENTURY

PG. 04THE DAZZLING INNOVATORS DRIVING THE ROBOT REVOLUTION

PG. 06HOW ROBOTICS ARE CHANGING THE WORLD

JANUARY/FEBRUARY

VOL. 01 | NO. 01

ROBOTICS MEGATREND

2

When Google (GOOGL) acquired no fewer than eight robotics companies in a span of six months in 2013, Wall Street uttered a collective, “Huh?”

Fast forward to today – after Amazon.com (AMZN) employed 15,000 Kiva robots as warehouse “pickers” during the holiday season – and Google’s buying spree now makes perfect sense.

The Age of Robotics is upon us!

Or as Boston Consulting Group (BCG) notes, “The megatrend toward mobile, autonomous, multipurpose, and bespoke robotics is gaining traction much more quickly than most corporate executives realize.”

True to form, Google was simply positioning itself in advance – just as it’s done with driverless cars. Dubbed “science fiction” when Google embarked on its first driverless car project in 2009, today all the major automakers are working on self-driving cars.

And the smart money is finally wising up to the opportunities in robotics…

66 BILLION REASONS TO GET ON BOARDIn the last year, venture capital firms poured $250 million into hardware-based robotics companies.

You’d think that would turn some heads. But most investors remain

oblivious to the inevitability of our robotic future. That means it’s not too late for us to get positioned.

In fact, our timing is perfect, as we’re entering the knee of the growth curve.

Over the next decade, worldwide spending on robotics is set to more

Dear Reader,

WORLDWIDE SPENDING ON ROBOTICS$80$70$60$50$40$30$20$10$0

2000 2005 2010 2012 2020 2025

Source: Boston Consulting Group

$7.4 $10.8$15.1

$26.9

$42.9

$66.9

2000 2005 2010 2012

(est.) 2020 (est.) 2025

$2.4B

$3.5B

$5.1B

$7.5B

$11.2B

$16.5B

$3.9B

$5.2B

$5.8B

$11B

$16.4B

$24.4B

$1.1B

$1.7B

$3.2B

$5.9B

$10.8B

$17B

$0B

$0.4B

$1B

$2.5B

$4.5B

$9B

$7.4B

$10.8B

$15.1B

$26.9B

$42.9B

$66.9B

Bill

ions

Military Industrial Commercial Personal TotalAnd here’s how that breaks down by sector...

(est.) (est.)

RISE OF THE MACHINES: THE BIGGEST

TECH REVOLUTION OF THE 21ST CENTURY

by LOUIS BASENESE

JANUARY/FEBRUARY

VOL. 01 | NO. 01

ROBOTICS MEGATREND

3

than double from $26.9 billion to $66.9 billion.

So what’s driving the boom? And what’s the best investment to capitalize on it?

We’ll answer both questions in a moment. But first, some crucial clarification…

AUTOMATION, NOT ARTIFICIAL INTELLIGENCEFor some, the mere mention of “robots” conjures up terrifying images of uber-intelligent machines blanketing Earth and wiping us out.

Even famed physicist Stephen Hawking and billionaire Elon Musk have made headlines with ominous predictions of destruction from robots.

Hawking told the BBC, “The development of artificial intelligence could spell the end of the human race.”

Meanwhile, Musk likens artificial intelligence to “summoning the demon.” He says it’s “our biggest existential threat.”

Obviously, we want no part of investing in such technology.

So let me be clear: When I say “robots” or “robotics,” I’m not talking about artificial intelligence. I’m talking about automation (i.e., machines that can complete tasks more efficiently, safely, and affordably than humans).

This isn’t some hypothetical possibility. It’s unfolding as we speak. Want proof?

WHO NEEDS HUMANS, ANYWAY?Look at Foxconn, the world’s largest contract manufacturer.

The company has over one million workers in China. But in 2011, it installed 10,000 robots. And it’s adding 30,000 new robots per year.

Or Philips in the Netherlands. It uses 128 robots to make razors and only nine humans for quality checks.

Understandably, automation is most prevalent in manufacturing. In the auto industry, for instance, robot density – a measure of the number of robots per 10,000 manufacturing workers – tops 1,000 in the United States, Japan, and Germany. See the chart above for a breakdown of current robotics adoption.

Now, in all other industries, density only tops 100 in two of the nine countries analyzed. Remember, though, disruptive technologies don’t

overtake industries simultaneously. They migrate over time, as economic conditions change. (It’s always about economics in the end.)

But make no mistake… automation is spreading. And not just in manufacturing, either. It’s affecting everything from healthcare to retail, finance, hospitality, transportation, real estate, and even government.

We’re already familiar with cases of robots removing dangerous explosives, vacuuming, and assisting with surgery and rehabilitation. But here are some other telling examples of recent robot applications:

• In Seattle, a robot administers sedatives to patients without the supervision of an anesthesiologist.

• In Silicon Valley, a robot bellhop delivers items to hotel guests.

• Not long ago, the Los Angeles Times published a news article about an earthquake, which was written by a software algorithm.

• In Thailand, the government introduced a robotic taste-tester to determine if food is sufficiently authentic or needs a tad more fish sauce. (No joke!)

AUTOMAKERS LOVE ROBOTSNumber of Robots Per 10,000 Workers in Auto Industry

1,5001,2501,000

750500250

0Japan Germany U.S. Spain S. Korea France Taiwan Malaysia China

Automotive

General Industries

Source: IFR, GaveKal Data

CONTINUED ON PG. 08...

JANUARY/FEBRUARY

VOL. 01 | NO. 01

ROBO PORTFOLIO

4

Now that Louis has spelled out the fascinating opportunity in robotics over the coming years, let’s break it down a bit further by looking at some of the individual leaders in the field.

When it comes to investing in robotics companies, they fall into three broad categories – pure-play robotics firms, robot component makers, and the industrial giants that depend on robots for their businesses and build them into their products.

Let’s take a look at all three categories – and the top three companies within each that are all part of the ROBO ETF portfolio…

ROBO CATEGORY #1: PURE-PLAYSPure-play robotics companies specifically make robots to carry out tasks. Generally, these companies specialize in the “brains” of a robot – what it does, how it reacts to situations, and how it interacts with humans.

The investment thesis for pure-play robot companies is the easiest to understand… but the hardest to get right.

Some companies will design robots

that nobody wants; others will simply fail at executing their business plans. But those who succeed tend do so on a big scale.

I covered one of these companies – iRobot (IRBT) – in a recent Wall Street Daily column. Other pure-play robotics firms in the ROBO portfolio include:

ReWalk Robotics (RWLK): ReWalk makes exoskeletons that allow paraplegics to stand and walk, giving them movement and independence once thought impossible.

But it’s also a therapeutic product that helps maintain bone density, improve cardiovascular and bowel functionality, and prevent muscle atrophy. Future products will help stroke patients, the elderly, and even healthy people whose jobs require handling heavy loads.

AeroVironment (AVAV): This company specializes in robotic drones. But what moves a drone from an unmanned aircraft into the realm of robots?

As Louis mentions in his article, the key is automation. Many of

AeroVironment’s drones are designed to operate without direct human supervision, mapping their own courses, sensing and avoiding obstructions, and even taking off and landing without a human operator.

Intuitive Surgical (ISRG): This early robotics pioneer has already enjoyed considerable success with its da Vinci surgical system.

Using a console, 3-D vision system, simulator, and fluorescence imaging, the system basically translates a human surgeon’s hand movements into more precise micro-movements inside the body. This means minimally invasive surgery can be performed for many conditions that wouldn’t have been possible for a human surgeon alone.

ROBO CATEGORY #2:ROBOT COMPONENT MAKERSComponent firms are the largest segment in robotics. Robot “brains” are like human brains, in that they can only make decisions based on the inputs they receive and can only act with the physical tools available.

THE DAZZLING INNOVATORS D R I V I N G T H E

ROBOT REVOLUTIONby GREG MILLER

JANUARY/FEBRUARY

VOL. 01 | NO. 01

ROBO PORTFOLIO

5

Component companies make devices that are the senses of the robot, and the physical tools that robots use to accomplish tasks. They also make the chips that are essentially the “brain” of the robot.

Most often, robotic components are an extension of a company’s existing business line. Examples in the ROBO portfolio include:

FLIR Systems (FLIR): This thermal vision company primarily makes devices that see in the infrared range. Such products are useful everywhere – from the battlefield to the plumbing under your sink.

In robotics, they can provide the “eyes” that a robot uses to sense its surroundings, often in ways that human eyes can’t.

FLIR also makes laser rangefinders and has expanded into “muscle” systems that allow robots to move their eyes according to the software written for their brains.

Trimble Navigation (TRMB): As its name suggests, Trimble got its start in the navigation business. It makes GPS and other satellite-positioning systems that tell machines exactly where they are much more accurately than the GPS you have on your smartphone.

Microchip Technology (MCHP): This semiconductor firm develops the chips that robotics companies use with their software and sensory input to provide the “brains” of robots.

ROBO CATEGORY #3:

INDUSTRIAL GIANTSThese large, well-established, successful companies realize that robotics will change the industries they operate in. They’re the forerunners that are proactively driving these changes, not reacting to them. As such, these leaders are in the ROBO portfolio:

Deere & Company (DE): The firm has extensive experience in applying various technologies to its products, but it’s just getting started in robotics.

In the future, farmers will be able to spend their time on more productive tasks, while a robot applies fertilizer, irrigates land, and even harvests crops.

Right now, Deere sells an autonomous lawnmower in Europe – essentially like a Roomba for your garden – but aims to expand into larger applications.

Siemens (SIEGY): Siemens has a long history in the robotics business. Specifically, it’s a leader in the field of industrial robots that manufactures components, assembles products, and performs quality control. Over time, Siemens will expand its industrial expertise to other business lines.

Northrop Grumman (NOC): This defense sector giant is at the forefront of what might be the most crucial part of the robot revolution. Any defense task that can be accomplished by robots, rather than putting military personnel at risk, is clearly a huge

benefit. The defense sector continues to be the impetus for technological advances.

LAYING THE FOUNDATION FOR FUTURE PROFITSMake no mistake… the robotics revolution is here – and it’s here to stay.

As we identify future investments for you in this rapidly growing area, we’ll primarily be looking for companies in the first two categories. Those are the more direct plays and will consequently benefit most from the growth.

But we’ll also follow the giants, since their moves will partly determine the fates of the smaller companies. It’s important to follow these companies because they’ll often buy firms in the other two categories, just as Google (GOOGL) – another ROBO portfolio company – is doing. And a timely acquisition could give us a quick profit.

Regardless, whether it’s by organic growth or via a buyout, robotics companies will present several outstanding investment opportunities over the next few years – and we’ll be working to make sure you’re a part of it.

For now, the ROBO ETF is a valuable investment, as it gives you exposure to all the major growth trends in the thriving robotics industry – and the companies driving it forward. DF

JANUARY/FEBRUARY

VOL. 01 | NO. 01

STATISTICS

6

HowROBOTICSARE CHANGINGThe World

THE FUTURE OF ROBOTICS

THREE KEYS TO IMPROVING ROBOTICS

4637

$50

$0

BIL

LIO

N

INDUSTRIAL ROBOTMARKET (2018)

SERVICE ROBOTMARKET (2017)

SOURCE: RESEARCH AND MARKETS SOURCE: STATISTA SOURCE: OXFORD HANDBOOK OF SKILLS AND TRAINING

WORLDWIDE SHIPMENTS OF INDUSTRIAL ROBOTS

2012

2015

(est

.)

= 1,000 SHIPMENTS

TECHNOLOGY COULD REPLACE MOST CURRENT JOBS

JOBS FOR HUMANS

JOBS FOR ROBOTS

80%

20%

According to Henrik Christensen, Executive Director of the Institute for Robotics and Intelligent Machines at Georgia Tech, there are three areas in which robotics need to improve:1. 2. 3.

BETTER MECHANICAL COMPONENTS AND TIGHTER INTEGRATION WITH THE ROBOT.

MORE ARTIFICIAL INTELLIGENCE TO “MAKE SYSTEMS SMARTER, IN TERMS OF

DIAGNOSTICS AND HIGHER-LEVEL ROBOTIC LANGUAGES.”

MORE MODERN, EASY-TO-OPERATE ROBOT INTERFACES FOR USERS THAT ARE “ON PAR

WITH VIDEOGAME INTERFACES.”

= 159,000

= 207,000

JANUARY/FEBRUARY

VOL. 01 | NO. 01

PORTFOLIO

7

NAME SYMBOL OPEN DATE OPEN PRICE RATING STOP PRICE RISK COMMENTS

Global Robotics & Automation Index ROBO 01/20 NEW BUY Use a 25% trailing stop ★ Robotics/automation megatrend

DIGITAL FORTUNES PORTFOLIO

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LOUIS BASENESE, CHIEF TECHNOLOGY ANALYST A former Wall Street investment consultant, Louis helped direct over $1 billion before co-founding Wall Street Daily, where he serves as Chief Technology Analyst. Louis uses a unique focus on patent-filing activity to identify the most transformational technology trends before they begin exerting their influence on individual sectors, the economy, and society as a whole. Louis is also the Founder of Disruptive Tech Research, a research and advisory firm serving the buy-side community. He regularly appears on national television programs, including CNBC’s “Closing Bell,” and is cited in other media outlets, such as The Wall Street Journal, The New York Times, Morningstar, and MarketWatch.

GREG MILLER, SENIOR TECHNOLOGY ANALYST Greg Miller has spent over 20 years in the financial industry as an institutional investor, working up from analyst to portfolio manager, where he was responsible for over $400-million worth of assets. He’s helped finance some of America’s biggest and most successful companies, such as Qwest Communications (now CenturyLink), plus some of the largest LBOs of all time. His high-level positions also gave him a front-row seat to some of the greatest meltdowns in financial history – Enron, WorldCom, and General Motors – plus incredible insights into the inner workings of “the Street.” At Digital Fortunes, Greg will apply his knowledge and experience to unearthing the most lucrative small-cap tech stocks and other overlooked or unappreciated opportunities.

THE DIGITAL FORTUNES MISSIONEmerging technologies that seemed like a fantasy a decade ago are fast-becoming a reality today. In the process, enormous amounts of wealth are being created. From an investment perspective, we can’t afford to miss out… which is precisely why we’ve decided to launch this brand-new, monthly publication, Digital Fortunes. As the number of technology-driven opportunities continues to rise, Digital Fortunes will give you exclusive access to our technology experts’ insights, investment analysis, and moneymaking recommendations. Every month, we’ll reveal the most explosive (and safest) ways to profit from the world’s most life-changing technology trends… before the rest of the market catches on. And you couldn’t have two better analysts to guide you…

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NEW

So what’s behind this new robotic world order?

CONVERGENCE AT WORKThe reason why automation is on the rise – and “gaining traction much more quickly than most people realize,” as BCG says – can be summed up in one word: convergence.

Improvements on multiple technological fronts are converging to make robotics dramatically more powerful and affordable than ever.

For example, thanks to advances in 3-D printing, prototypes can be made more quickly and cheaply, which accelerates development time.

Plus, the smartphone boom means sensors and other components used in robots are widely available. Computing power also keeps increasing. And thanks to advances in materials sciences, robots can be used in more demanding applications.

Simply put, robots are cheaper, smaller, more efficient, and capable of higher performance than ever. And that’s fueling a massive acceleration of adoption and applications. So how do we capitalize on this trend?

THE SMARTEST WAY TO PLAY THE ROBOTICS MEGATRENDUnderstand that while automation is accelerating, we’re still in the early stages of robotics growth.

As such, companies with meaningful exposure aren’t always easy to identify. And trying to pick individual winners can be exceptionally difficult (read: risky). One bad choice and you can miss the trend – and profits – entirely.

However, if we wait until the winners are obvious, we’ll lose out on the biggest gains.

That’s what makes the ROBO-STOX Global Robotics & Automation Index ETF (ROBO) such an ideal investment right now…

Each of the 85 companies in the portfolio derives a portion of revenue from robotics-related or automation-related products and services.

Among the holdings are today’s leaders – like iRobot (IRBT), Rockwell Automation (ROK), and Intuitive Surgical (ISRG). Tomorrow’s potential big winners are also on the roster. We’re talking about Mazor Robotics (MZOR), Immersion (IMMR), and e2v Technologies (E2V.L).

What makes ROBO particularly unique is that it’s “opportunity weighted.”

That means instead of investing equally in all 85 companies – or based on market cap like many indexes, which dilutes our exposure to smaller, potentially more-explosive winners – it employs a 40/60 asset ratio.

So of the fund’s $100 million in assets, 40% is invested evenly in 20 bellwether companies. The other 60% is split among 65 non-bellwether companies.

The bellwethers reduce risk, while the non-bellwethers increase our reward potential.

And given that most of the non-bellwethers are small- and mid-cap companies, the 60% weighting ensures that their performance is meaningful to our bottom line, too. Here are three other key benefits from ROBO:

• Dynamic: As the robotics industry evolves, so does ROBO. A team of robotics experts and index analysts constantly analyze the markets to ensure the ETF remains a leading indicator of the robotics and automation market. Any adjustments are made quarterly.

• Unparalleled Diversification: Not only does ROBO invest across all market caps (17% large cap, 38% small cap, 44% mid cap), industries, and sectors related to automation, it also invests in 15 different countries. Constructing a similar portfolio on our own would be costly, cumbersome, and impractical – particularly on foreign exchanges.

• Affordable and Tax Efficient: The ETF has an expense ratio of only 0.95% and an annual turnover of 8%, making this an affordable and tax-efficient investment opportunity.

So in a single security, we gain exposure to the entire robotics and automation chain. From the makers of actual robots to companies that provide critical “enabling” technologies – like actuators, motion sensors, location sensors, plus image and spatial recognition software. At this point in the robotics megatrend, there’s no better way to invest than in ROBO.

Action to Take: Buy the ROBO-STOX Global Robotics & Automation Index ETF (ROBO) at market. Use a 25% trailing stop to protect your profits and principal.

CONTINUED FROM PG. 03...

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DF