In August, Motley Fool Explorer did a deep dive into the field of robotics, and what we found was incredible. 

Due to falling costs, demand for industrial robotics is skyrocketing. Particularly in China, an "arms race" is breaking out where industrial companies are incorporating robots at a frenetic pace in order to match the efficiency gains of their competitors. We're already seeing estimates that the number of industrial robots deployed will triple within the next 10 years. That could bode well for robot-supplying companies, including Rockwell Automation or FANUC (NASDAQOTH:FANUY)

Furthermore, due to the integration of artificial intelligence, robots are capable of handling significantly more complex tasks. AI is helping iRobot (NASDAQ:IRBT) build new products to further penetrate the consumer market, while helping Amazon create tens of billions of dollars of additional value for shareholders. 

Explorer lead advisor Simon Erickson recently spoke with Brian Gahsman. Brian is the portfolio manager of the AlphaCentric Global Innovations Fund, which is the only actively-managed mutual fund that focuses specifically on the robotics and automation sectors.

In this video, Simon and Brian discuss why the robotics industry is so intriguing for investors and why companies are so actively deploying robots across their operations. Brian also shares several of his favorite investing ideas in the space.

Motley Fool Explorer makes investment recommendations in the market's most innovative, developing trends. Explorer will be reopening to new members in December, so keep an eye on your Inbox if you are interested in joining.

A full transcript follows the video.

Simon Erickson: Hi, everyone. Explorer lead advisor Simon Erickson joined this morning by Brian Gahsman, the portfolio manager of AlphaCentric's Global Innovations Fund. That ticker is GNXAX. The AlphaCentric Global Innovations Fund is the only actively-managed mutual fund that's dedicated to automation and robotics. Brian, thanks for joining me this morning.

Brian Gahsman: Thank you.

Erickson: Brian, this is a relatively new fund that just launched this year in June. I want to start by asking you what it is about robotics that makes this industry so appealing for investors.

Gahsman: I began managing the strategy, overall, in 2014. Prior to that, we really saw robotics on a global scale more directed toward hobbyists and something for the future. Then, we saw a tipping point begin to happen back in 2014 when the cost of the technology dramatically dropped. Companies began automating and manufacturing, as well as entering the space of robotic surgery and consumer-related goods.

The space, overall, became an exponential driving force for the global industrial economy. We saw large global companies implement robotics and automation systems -- companies such as Ford, Foxconn, and GM using automation companies like KUKA (NASDAQOTH:KUKAF) in Germany and FANUC and YASKAWA from Japan -- begin automating their manufacturing facilities. What was found was the margin cost for goods produced decreased exponentially.

And once those larger companies (Ford, GM, Amazon, Foxconn) began the automation process in 2015, we saw that the competitors of those companies had no choice but to also implement the same automation, because otherwise, there was no way for them to compete. So for the past three years, this movement, this evolution, or Machine Age 2.0, if you will (the second machine age) has really taken off and changed the world.

We are seeing not just industrial manufacturing all over the world being automated, but it expands to almost every industry and sector. We're seeing the food and beverage industry automating. We're seeing medicine's rise in its use with surgical robotics with close to a zero percent margin for error, and they have no specific limit to manual dexterity which our current surgeons have. This makes the term "inoperable" almost disappear completely. Almost every area you look at right now is touched by robotics and automation.

In my career thus far I have always worked with international investments, international securities, and that greatly coincides with investing in this space because these aren't U.S. companies that are creating the automation systems and creating these robots. Japan, by far, is leading the manufacturing of equipment for robots -- the automation systems. That's followed by Germany and the rest of Europe.

Now, there aren't ADRs for the majority of these securities, so unless you're willing to go on foreign exchanges and purchase the actual foreign securities, there's no way to invest in this space at this point.

Erickson: And Brian, I wanted to touch on what the basis for purchase decisions is for robotics. You mentioned Amazon as one of the several companies that have deployed these. When they bought Kiva, a lot of that was to lock competitors out from the robots they were using in their warehouses. Is the purchase decision for robotics still something economic in terms of like a payback period or a return on investment, or are we starting to see these become more strategic?

Gahsman: Oh, these are definitely more strategic. I mean, these aren't trades by any means. I think we are at a point of rapid expansion. I guess an example to use is biotech. Biotech during the '80s and '90s and the past decade [has been] skyrocketing. In comparison to the biotechs, we are at the early stages of what inevitably will be just as great if not greater, as far as investment performance and returns go, including the market caps of these companies, which are also growing at an unbelievable rate.

I think we're just at the beginning stages of this. When I began investing in robotics automation back in 2014, I think I was a bit early on, because these companies didn't start to take off and perform until probably the beginning of this year. We're seeing in the global index that I've created with these companies over a 40% return year to date, and that is due, as I said, to the massive global adoption of these systems and competition. If one company implements this, then the company across the street has to.

On top of that, we have China. China has implemented a policy called the Made in China 2025 Plan. With that policy, China plans to automate the majority, if not all, of their manufacturing. They're not building these robotics and automation systems in-house in China. China is also going to Japan, Europe, and these very same companies and signing contracts.

KUKA Robotics in Germany just announced they're going to double their production to China. That comes after a week or two ago, when the largest firms in Japan, FANUC and YASKAWA also agreed to double capacity to meet China's needs. China is definitely the largest growing market as far as demand is concerned (to meet that policy need), but on top of that, those companies are also providing robotics automation assistance to every other country in the world. And until the U.S. or another nation takes the lead in this, those companies have a long growth rate and this is literally just the beginning stages of what we're going to see.

Erickson: When you mention those systems, this isn't just assembly line manufacturing of robots anymore. There's a component of them that is software. We keep hearing AI and machine learning. What is the role of IT or software in the robots today versus what we traditionally thought of?

Gahsman: Well, granted AI is in the future going to play an increasingly large role in robotics and automation systems, we're not currently at the point of what we've seen in movies and the scary talk that we've heard on television; that these robots are going to take over our jobs and take over our lives. We're not there, yet. The role of IT or software, as far as this space is concerned, is really IoT, the Internet of Things. The connectivity of machines to the web, to the internet, to business information systems is the connectivity to program control, to maintaining updates to these machines. So I see IoT, currently, playing a much larger role.

Going forward in the future, obviously the technology is headed in the direction of using more AI to cut back on the necessity to program and maintain these machines, but that's really not happening right now as far as robotic foundation is concerned. They're not on the level of autonomous vehicles or anything like that. I just like to mention that to people that assume that the advancements with AI and also automation are a scary thing. Robots are not thinking to themselves at this point. We're using IoT to control them and have them communicate.

Erickson: So we're not at Rosie at the Jetsons or the AI movie with Will Smith. That's not happening out there just yet.

Gahsman: No. That is not happening out there right now.

Erickson: Brian, something else I noticed when looking through the fund is that you guys are doing bottom-up research to identify innovative companies in this space (bottom-up meaning looking at company by company), and you're seeking long-term capital gains. When you're looking at the companies in the robotics industry, what are a couple of things you're actually looking for to consider adding them to the portfolio?

Gahsman: My portfolio is concentrated with between 30 and 35 holdings in it. When I began researching robotics automation back in 2014, there was no index. There's no unique identifier, sector, or group that flags all these companies. I literally went through, one by one, country by country, company by company and created the index or the universe. And my criterion for investment, or a company being added to my universe as a possible investment, is the company has to be a pure play in robotics or automation.

As I explained earlier, companies out there such as Amazon who use robots use just robots specifically in their facilities. Just because Amazon uses robots and automation systems does not make Amazon robotics an automation company. The same thing with John Deere. John Deere is using robotic agricultural equipment right now, but that does not make John Deere a robotics company.

So I specifically research and target investing in companies that are manufacturing the robots: the automation equipment, the sensors, the motors, some IoT, and it has to be a pure play. I'm talking around 40% revenue specifically generated from selling robotics automation equipment and components.

Erickson: And as far as the companies, it looks like the portfolio of your Global Innovations Fund has 31 holdings -- average market cap roughly $4 billion. What are a couple of the companies? You've mentioned a couple in the call, here, but what are a few more that you really like in this space?

Gahsman: As I mentioned, FANUC, YASKAWA, and KUKA Robotics. Those three are the groundbreaking or are at the forefront of the industrial robotics automation area but also medical incision for robotics. We have Intuitive Surgical, which is becoming a household name for everyone. There's also Corindus Vascular. They specialize in cardiovascular procedures. Elekta that focuses on radiation therapy. TransEnterix, which focuses on laparoscopic minimally invasive surgeries.

I don't want to say some of those companies are at the forefront, because Intuitive Surgical and a couple of the others have been in business for quite some time with FDA approval and have been implemented by some of the largest hospitals in the United States. But to be able to have a procedure done now with, as I said, almost a zero margin of error; human beings have a limited amount of manual dexterity. If you have a very severe brain tumor, and you have the option to choose the best surgeon in the country, or to go and have a procedure done by an FDA-approved machine with a zero margin of error, what are you going to choose?

Erickson: Exactly. Bring out the robot.

Gahsman: Exactly.

Erickson: Well, we'll keep an eye on that medical field. Again, Brian Gahsman, portfolio manager of the AlphaCentric Global Innovations Fund. That ticker was GNXAX. Brian, thanks again for joining us this morning.

Gahsman: Thanks a lot.

Erickson: Thanks for tuning in. Until next time, Fool on!

Simon Erickson owns shares of Amazon and iRobot. The Motley Fool owns shares of and recommends Amazon, Intuitive Surgical, and iRobot. The Motley Fool has a disclosure policy.