Ai Etf: Worth The Investment?

Artificial intelligence (AI) is one of the biggest trends of the 2020s, with the potential to drastically change how we live and work. AI ETFs are tradable baskets of AI stocks, which are shares of companies involved with AI development. They are one of the simplest ways investors can participate in the growing AI industry. AI ETFs allow investors to gain exposure to a broad range of the best AI companies without having to select individual stocks. However, it is important to note that the performance of an AI ETF will depend on the underlying stocks it holds and how much the fund has allocated towards the top performers. When considering whether to invest in AI ETFs, it is crucial to evaluate the fund's expense ratio, dividend yield, and past performance. Diversification is also key, as the AI market is still in its early stages of development.

AI ETFs: pros and cons

Pros

AI ETFs (exchange-traded funds) are an increasingly popular way to invest in the growing artificial intelligence industry. Here are some of the benefits of investing in AI ETFs:

• Diversification: AI ETFs provide exposure to a diverse range of companies involved in AI development, reducing the risk associated with holding individual stocks.
• Targeted exposure: AI ETFs offer targeted exposure to companies at the forefront of AI innovation, allowing investors to benefit from the long-term growth potential of this cutting-edge technology.
• Lower risk: By holding a basket of stocks, AI ETFs generally carry less risk than holding just a few individual stocks.
• Expertise: AI ETFs are designed by experts who can identify companies that are heavily engaged in AI development, even if they don't fall neatly into traditional sector classifications.
• Long-term growth potential: AI is expected to be a predominant driver of growth in the coming years, making AI ETFs an attractive option for investors seeking long-term growth.

Cons

• Performance depends on underlying stocks: The performance of an AI ETF will depend on the underlying stocks it holds and how much it has allocated towards top performers.
• Risk of volatility: While AI has the potential to transform the global economy, it also faces challenges such as safety concerns and government regulation, which can lead to volatility in the performance of AI ETFs.
• Competition and obsolescence: Investing in AI carries risks such as intense competition, rapid product obsolescence, and dependency on consumer demand.
• Sector-specific risks: Companies in the AI industry may face sector-specific market and business risks that can affect the overall performance of AI ETFs.

Best AI ETFs to buy now

AI exchange-traded funds are a great way to invest in artificial intelligence, a significant technological advancement with a broad range of applications. The AI market is still in its early stages, and investing now could mean big payoffs in the future.

AI-themed ETFs are a good way to get exposure to companies that are leaders in AI innovation. These funds use proprietary methodologies and indexes to capture companies that are at the forefront of AI development.

Xtrackers Artificial Intelligence and Big Data ETF (XAIX)

XAIX takes a forward-looking approach by screening for approved patents in AI-related fields such as deep learning, image and speech recognition, and natural language processing. The European version of this ETF holds over $3.5 billion in assets and is now available to US investors at a 0.35% expense ratio.

Roundhill Generative AI & Technology ETF (CHAT)

CHAT offers exposure to generative AI, which includes notable examples such as ChatGPT, Google's DeepMind, and AI-driven content creation tools like DALL-E and Midjourney. The ETF selects stocks using a proprietary methodology that combines a transcript score and sector score to evaluate companies' relevance to generative AI. CHAT charges a 0.75% expense ratio.

Invesco AI and Next Gen Software ETF (IGPT)

IGPT tracks the STOXX World AC NexGen Software Development Index, which includes 100 companies from across the globe that generate revenue from software and AI. Top holdings include Meta Platforms Inc. (META), Alphabet Inc. (GOOGL), and Nvidia Corp. (NVDA). The fund has a 0.6% expense ratio.

Global X Artificial Intelligence & Technology ETF (AIQ)

AIQ offers broad exposure to the entire AI value chain, similar to the Nasdaq-100 but with a stronger tilt towards technology and mid-cap growth. It provides a globally diversified portfolio of 84 companies, including Alibaba Group Holdings Ltd. (BABA), Oracle Corp. (ORCL), and Meta Platforms. AIQ has a 0.68% expense ratio.

Global X Robotics & Artificial Intelligence ETF (BOTZ)

BOTZ is a more niche play on applied automation, with less focus on large US technology firms and more allocation to tech companies developing robotic and AI applications. The ETF's portfolio is only 49% composed of American stocks, with a large portion (31%) allocated to Japanese stocks in the manufacturing sector. BOTZ has a 0.68% expense ratio.

REX AI Equity Premium Income ETF (AIPI)

AIPI is a unique offering that allows investors to synthetically create an income stream from AI investments by selling covered call options. This strategy provides a rare income source in a sector not typically associated with dividends, with AIPI currently paying a 34.8% distribution rate.

Other notable mentions:

• Vanguard Information Technology ETF (VGT)
• Fidelity MSCI Information Technology Index ETF (FTEC)
• SPDR S&P Kensho New Economies Composite ETF (KOMP)
• IShares Robotics and AI Multisector ETF (IRBO)
• First Trust Nasdaq AI and Robotics ETF (ROBT)
• Defiance Quantum ETF (QTUM)

AI stocks vs AI ETFs

Overview

The AI market is still in its early stages of development, and as a result, diversification is key. Thematic investing is a strategy that focuses on long-term potential by targeting specific trends or ideas that go beyond traditional sector classifications. This makes it an attractive approach for forward-thinking investors keen on AI.

AI-themed ETFs provide exposure to companies that are leaders in AI innovation, but for those considering investing in AI, the question remains: should I opt for AI stocks or AI ETFs? This comparison will explore the key differences between these options to help guide your decision-making process.

AI Stocks

AI stocks refer to individual companies that are heavily engaged in artificial intelligence. These companies can be categorised into three types: enablers, engagers, and enhancers.

• Enablers: Enablers provide the core components necessary for AI development, such as semiconductors or cloud computing infrastructure. Examples include Nvidia, Taiwan Semiconductor, and Microsoft.
• Engagers: Engagers incorporate AI technology into their core products and services. Darktrace, a cybersecurity company that uses machine learning for threat detection and response, is an example of an engager.
• Enhancers: Enhancers contribute to the AI ecosystem without directly selling AI solutions. Tencent Holdings, a streaming entertainment and online advertising company, is an example of an enhancer as it uses AI to predict content popularity.

AI ETFs (Exchange-Traded Funds)

AI ETFs are funds that invest in companies positioned to benefit from the growing adoption of AI. These funds provide a more diversified approach to investing in AI compared to individual stocks. Here are some key considerations about AI ETFs:

• Diversification: AI ETFs offer a diversified portfolio of companies across different categories (enablers, engagers, and enhancers) and geographies. This diversification reduces the risk associated with picking individual stocks.
• Expert Selection: AI ETFs are designed by financial experts who use proprietary methodologies and indexes to select companies that are leaders in AI innovation. This expertise can be beneficial for investors who may not have the time or knowledge to research individual AI stocks.
• Long-Term Growth: A common goal for investing in AI ETFs is long-term growth. While some funds do pay small dividends, the main focus is on capital appreciation.
• Expense Ratios: AI ETFs have varying expense ratios, which represent the annual fees associated with managing the fund. When choosing an AI ETF, it's important to consider the expense ratio to ensure it aligns with your investment goals and budget.

Both AI stocks and AI ETFs offer investment opportunities in the field of artificial intelligence. AI stocks allow for more targeted investments in specific companies, while AI ETFs provide a diversified approach with expert selection and a focus on long-term growth. The decision between the two depends on your investment strategy, risk tolerance, and preferences. It is always recommended to conduct thorough research and consult with a financial advisor before making any investment decisions.

How to invest in AI ETFs

AI ETFs (exchange-traded funds) are a simple way for investors to participate in the growing artificial intelligence industry. They are baskets of AI stocks, which are shares of companies involved with AI development.

AI ETFs are an attractive strategy for forward-thinking investors as they take a targeted approach to the stock market, focusing on long-term growth rather than short-lived fads.

Firstly, you will need a brokerage account or an individual retirement account (IRA). Then, you will need to decide on your investment goals and how AI ETFs fit into your overall investment strategy.

It is important to note that investing in AI carries risks, including data inaccuracy, intense competition, rapid product obsolescence, and dependency on consumer demand.

Vanguard Information Technology ETF (VGT)

• Expense ratio: 0.10%
• Year-to-date return: 10.3%
• Number of holdings: 313
• Top holdings: Microsoft, Nvidia, and Broadcom

Fidelity MSCI Information Technology Index ETF (FTEC)

• Expense ratio: 0.084%
• Year-to-date return: 10.4%
• Number of holdings: 304
• Top holdings: Microsoft, Apple, Nvidia, and Broadcom

SPDR S&P Kensho New Economies Composite ETF (KOMP)

• Expense ratio: 0.20%
• Year-to-date return: 2.2%
• Number of holdings: 435
• Top holding: Leidos Holdings

IShares Robotics and AI Multisector ETF (IRBO)

• Expense ratio: 0.47%
• Year-to-date return: 0.1%
• Number of holdings: 109

First Trust Nasdaq AI and Robotics ETF (ROBT)

• Expense ratio: 0.65%
• Year-to-date return: -4.0%
• Number of holdings: 108

Defiance Quantum ETF (QTUM)

• Expense ratio: 0.40%
• Year-to-date return: 13.6%
• Number of holdings: 71
• Top holdings: Microstrategy, Micron Technology, and Onto Innovation

Invesco AI and Next Gen Software ETF (IGPT)

• Expense ratio: 0.61%
• Year-to-date return: 16.5%
• Number of holdings: 98
• Top holdings: Alphabet, Nvidia, Meta Platforms, and Advanced Micro Devices

IShares Future AI and Tech ETF (ARTY)

• Expense ratio: 0.47%
• 1-year return: 20.6%
• Assets: $614.1 million
• Top holdings: Nvidia, Broadcom, Super Micro Computer, and Advanced Micro Devices

Global X Robotics and Artificial Intelligence ETF (BOTZ)

• Expense ratio: 0.68%
• 1-year return: 34.6%
• Assets: $2.5 billion
• Top holdings: ABB Ltd., Nvidia, Intuitive Surgical, and Keyence Corp

Global X Artificial Intelligence and Technology ETF (AIQ)

• Expense ratio: 0.68%
• 1-year return: 41.0%
• Assets: $2.2 billion
• Top holdings: Alibaba Group, International Business Machines, Oracle, and Cisco Systems

WisdomTree Artificial Intelligence and Innovation ETF (WTAI)

• Expense ratio: 0.45%
• 1-year return: 22.2%
• Assets: $196.9 million
• Top holdings: Arm Holdings, Nvidia, Meta Platforms, and Taiwan Semiconductor Manufacturing Co

AI ETF investment strategies

AI-related ETFs provide exposure to a wide range of companies that are positioned to benefit from the growing adoption of AI technologies. These companies can be categorised as enablers, engagers, and enhancers. Enablers supply core components for AI development, such as semiconductors or cloud computing infrastructure, while engagers incorporate AI technology into their core products and services. Enhancers contribute to the AI ecosystem without directly selling AI solutions.

When considering an AI ETF, diversification is key, as the AI market is still in its early stages of development. Thematic investing can be a good strategy for forward-thinking investors, as it takes a targeted approach to the stock market, focusing on long-term potential rather than short-lived fads. It is important to look for funds with efficient expense ratios, high net asset values, and diverse portfolios.

• Vanguard Information Technology ETF (VGT): This ETF has a low expense ratio of 0.10% and invests in leading technology stocks, including Microsoft, Nvidia, and Broadcom.
• Fidelity MSCI Information Technology Index ETF (FTEC): FTEC has an even lower expense ratio of 0.084% and tracks the MSCI USA IMI Information Technology Index, with top holdings including Microsoft, Apple, Nvidia, and Broadcom.
• SPDR S&P Kensho New Economies Composite ETF (KOMP): KOMP has an expense ratio of 0.20% and focuses on companies pursuing innovation in robotics, automation, AI, connectedness, and processing power. Its top holding is Leidos Holdings, which provides AI and cybersecurity services.
• IShares Robotics and AI Multisector ETF (IRBO): IRBO tracks the NYSE FactSet Global Robotics and Artificial Intelligence Index and includes companies that enable or use robotics and AI technologies. It has an expense ratio of 0.47%.
• First Trust Nasdaq AI and Robotics ETF (ROBT): ROBT takes a broad view of AI exposure by investing in enablers, engagers, and enhancers. It has an expense ratio of 0.65%.
• Defiance Quantum ETF (QTUM): QTUM focuses on companies that enable quantum computing, which extends the capabilities of AI and machine learning. It has an expense ratio of 0.40%.

Frequently asked questions