Unless you've been living under a rock, you probably understand that AI is advancing rapidly. And most of the time, when a technology is adopted and developed this rapidly, investors know there is big potential.
For this reason, there is great demand for AI ETFs and AI-related ETFs on the market today.
What is Artificial Intelligence?
Artificial Intelligence is the simulation of human intelligence through robots, machine learning, natural language processing, and computers. The AI allows the systems to learn and increase efficiency.
Today, AI is utilized in many industries, including healthcare, robotics, finance, the military, and entertainment. Some of your favorite banks may even use AI to help you make better financial decisions.
The global artificial intelligence market is expected to grow at a compound annual growth rate of 37% through 2030. This level of growth from an industry already worth hundreds of billions of dollars is hard to fathom. However, it seems reasonable, especially with the level of rapid scale growth in recent times.
Are AI ETFs a good investment?
Typically, the more volatile a specific niche or industry of the stock market is, the more investors who want exposure should opt for an ETF. Why?
Well, younger industries tend to be full of budding technology and innovation, and with that comes a lot of smaller, unprofitable or unproven companies. These companies are highly volatile, prone to huge stock price swings, and could completely fizzle out. Even more mature industries like the oil and gas sector can contain smaller, junior players that pose high risk.
As a result, as an individual investor, you run the risk of choosing the wrong company in the sector. You could miss out on large-scale gains from other players, or even worse, the company you buy could end up going broke.
For this reason, buying the entire industry via something like a technology ETF, is often thought of as the strongest choice. In this article, we'll focus on AI ETFs exclusively.
That way, if a single company underperforms, you aren't exposed to only that company and sitting on large losses. Instead, you own many companies, sometimes hundreds, of which some are bound to succeed.
You can also expand beyond this list of AI ETFs and buy a broad-based, NASDAQ ETF. Many of the companies on the NASDAQ are involved in AI.
What are the best AI ETFs to buy right now?
- Global X Robotics & Artificial Intelligence ETF (BOTZ)
- iShares Robotics & Artificial Intelligence Multisector ETF (IRBO)
- ROBO Global Robotics and Automation Index ETF (ROBO)
- Roundhill Generative AI & Technology ETF (CHAT)
- First Trust NASDAQ Artificial Intelligence ETF (ROBT)
- ARK Autonomous Technology & Robotics ETF (ARKQ)
Global X Robotics & Artificial Intelligence ETF (BOTZ)
The Global X AI ETF is arguably the most popular ETF in the country. The fund has $2.5B in AUM at the time of writing, with a whopping $650M coming from 2023 alone. The 2022 bear market was rough on the fund. Still, it is off to an exceptional start in 2023, thanks to an AI revolution that has seen stocks exposed to AI skyrocket.
Many investors who think of AI think of companies like Alphabet (GOOG), Microsoft (MSFT), Apple (AAPL), and Nvidia (NVDA). However, the only company inside of the top ten holdings of this fund that I just mentioned is Nvidia. Other top holdings include Intuitive Surgical, which is a large-cap company that utilizes AI to assist with non-invasive surgeries; ABB Ltd (ABLZF), a global company that supplies robotic arms; and Keyence Corp (KYCCF), which supplies automation sensors and machine learning systems.
The benefit of this fund is that many of its holdings are not from the United States. Only around half the fund's holdings are companies from the United States. The other major geographical exposures are to countries like Japan and Switzerland.
The fund's benchmark index is the Global Robotics & Artificial Intelligence Thematic Index. It has a management fee of 0.69%, meaning if you invest $1000, you'll pay $6.90 annually to invest in the fund.
This is far from low-cost. However, most of these AI ETFs will be very niche-related investments. And as soon as we steer away from a broad-based index fund and instead focus more on particular industries, fees will no doubt go up.
It pays a minimal distribution, around 0.18%. With its international exposure, it is one of the most diverse options for AI ETFs. Although the United States is a powerful leader in AI, many developing and established countries are also.
iShares Robotics & Artificial Intelligence Multisector ETF (IRBO)
Debuting in 2018, the iShares Robotics and AI ETF aims to track the returns of the NYSE FactSet Global Robotics and Artificial Intelligence Index. However, the fund doesn't invest 100% of its capital into this index. If it chooses to, it can invest up to 20% of it into options, swap contracts, or even hold cash.
The fund is much smaller than BOTZ, with assets under management of only $486M. However, the fund does come in with lower fees than BOTZ. If you buy $1000 worth of this fund, you'll pay a management fee of $4.70, or 0.47%, every year you own it.
The iShares ETF offers much more geographical diversity than a fund like BOTZ. Although it is similar, with 50% of its exposure being in the United States, it has no more than 12% exposure to other countries. China, Taiwan, Japan, and many developed countries in Europe are some other areas the fund exposes the investor to.
In regards to holdings, Faraday Technology Corp (FDYTF) is the top holding, followed by FuboTV (FUBO), Microstrategy Inc (MSTR), Meitu Inc (MEIUF), and Megaport Ltd (MGPPF). So, this isn't exactly the most notable set of top 5 holdings regarding AI reputation, but they're all major AI players.
It doesn't pay much of a dividend, coming in at around 0.6%. But when a fund's underlying holdings are primarily non-dividend paying growth stocks, this isn't all that surprising. Overall, it's a strong fund for global AI exposure.
ROBO Global Robotics and Automation Index ETF (ROBO)
The ROBO Global Robotics ETF is a fund that aims to track companies in the robotics and automation industries. The fund aims to track the Global® Robotics and Automation Index.
This index primarily comprises small to mid-cap companies outside of the United States. The fund has around 45% of its holdings allocated to companies in the US, and the other 55% comes from developed markets in Europe, Japan, and Taiwan.
With 82 total holdings, there isn't a company in the ETF that makes up significant weighting. Its largest holding is Ocado Group PLC, a grocery company from the United Kingdom, with around a 2.5% allocation. The AI element of the company primarily comes from its online retail fulfilment and delivery solutions.
Outside of that, it contains companies like Rockwell Automation (ROK), Intuitive Surgical (ISRG), and IPG Photonics Corp (IPGP). The fund does contain a well-known AI player in Nvidia. However, it only makes up around 1.50% of the fund and is the 18th largest holding at the time of writing.
The one knock on this fund is that its management fee is extremely high compared to the others on this list. You'll pay 0.95%, meaning every $1000 you invest will cost you $9.50 a year. Its performance has been the best of everyone on this list, even after fees are accounted for. So, thus far, it has been worth the higher fee, but that is not to say it will be in the future.
Unlike the other funds that may have a tiny dividend, this one pays no dividend at all.
Of note, Robo Global does have another artificial intelligence ETF, the Robo Global Artificial Intelligence ETF (THNQ). However, I didn't include it on this list due to its relatively small size, with only $55M in AUM. Feel free to have a peek at it.
Roundhill Generative AI & Technology ETF (CHAT)
The Roundhill Generative AI ETF is a new AI-based ETF, debuting in April 2023. With the fund's short history, it also does have a relatively small AUM, coming in at only $87.7M.
This fund will not be like the three funds we've discussed above. You will see much larger, more notable names from the US markets in this ETF.
Its top holdings contain many of the top technology stocks in the US, including Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Baidu (BIDU), and Adobe (ADBE). Outside the top five, you'll see other notable names like Palantir, Tencent Holdings, Alibaba, and Meta Platforms.
The fund is concentrated, having only 38 total holdings, and the top five account for more than 30% of total assets. Regarding geographical exposure, this is much more of a US-based ETF, with 73% of its total AUM designated towards US-listed companies.
Also, China makes up most of the remainder at 23%. So, this is quite a difference from the Japan/Taiwanese exposure we've witnessed in the first three ETFs we've talked about. If you're a stickler for investing in the Chinese economy or Chinese stocks, this ETF may not be for you.
It pays no dividend and has management fees of 0.75%. Invest $1000 in this fund, and you'll pay $7.50 annually. This is a relatively high fee, which is not surprising considering how new the fund is and how low the assets under management are. When the fund gets larger, there is a good chance fees could come down to a more competitive level.
First Trust NASDAQ Artificial Intelligence ETF (ROBT)
The First Trust Artificial Intelligence ETF is one of the smaller AI ETFs on this list, with assets under management of $420M. However, it's put up some impressive returns since its 2018 debut. It is certainly a fund you'll want to peek at if you're interested in AI.
This fund is made up like most others on this list, with around half of the portfolio allocated to the United States and the remainder allocated to developed European regions and Japan.
Its top holdings contain:
- Valeo SA (VLEEF) is an auto parts and powertrain company.
- Gentex (GNTX) is also involved in the auto parts sector.
- Trimble (TRMB) is a GPS and laser scanning company.
The fund has management fees of 0.65%, meaning if you invest $1000, you'll pay $6.50 yearly. It pays a very small dividend, around 0.25% at the time of writing, so don't bank on this one to provide you with a stream of passive income. Instead, its goal is to offer outsized total returns by investing in small to large-cap growth companies in the AI sector.
ARK Autonomous Technology & Robotics ETF (ARKQ)
ARK funds have taken a bit of a hit to their reputation over the last few years. Pandemic-driven euphoria caused assets to surge to crazy levels. As a result, the funds had to deploy that capital into companies with sky-high valuations. However, now that prices have returned to earth, they're worth a look.
The fund has assets under management of $1.13B. After a rough year in 2022 for outflows, it is finally starting to witness some inflows due to the AI craze.
This fund is different from most on this list because it is a virtual North American pure-play. Over 90% of its assets are US-based companies. It is also different because this is not an index fund. It does not replicate a benchmark index in terms of holdings. This is an actively managed fund, meaning the managers choose the stocks and allocations themselves.
In terms of top holdings, it is heavily weighted towards Tesla (TSLA), which makes up nearly 15% of the ETF. After that, we have UiPath (PATH), Kratos Defense & Security (KTOS), Teradyne (TER), and Trimble (TRMB).
The majority of the portfolio is small to mid-cap growth stocks. However, some mega and large-cap stocks are mixed in as well.
This ETF is one of the oldest on this list, being around since early 2015. It has put up sizable returns since then, which has allowed it to justify its high 0.75% management fee. Considering this is an actively managed fund, I wouldn't expect that fee to get any lower.
Overall, these AI ETFs provide exposure to the sector with lower volatility than individual stocks
I hope I've given you a wide variety of ideas regarding different AI ETFs. Although a lot of these have high expense ratios, this is due to the fact they are niche ETFs and will typically always command higher fees.
The adoption of artificial intelligence & technology is expanding at a rapid pace, and I don't blame you for wanting to grab some exposure to the industry. However, depending on your investment objectives, you must figure out if these ETFs are right for you. They'll have lower volatility than picking individual AI stocks, but make no mistake; these funds still have the potential to vary wildly in price based on news and movements in the AI space.