Best AI ETFs
How to access megatrends such as automation and robotics via ETFs
Artificial intelligence (AI) is set to be one of the biggest megatrends of our time. The AI market was thought to be worth $27.2 billion in 2019, and is forecast to grow almost tenfold to $266.9 billion by 2027, according to Fortune Business Insights.
It's more than just Alexa or Siri and encompasses sectors such as automation, robotics, autonomous vehicles and cybersecurity. Of course, the rise of chatbots ChatGPT and Bard have only served to elevate interest in 2023.
Exchange-traded funds can be a good entry point into the sector, spreading risk by enabling investors to access a basket of companies rather than invest in individual shares. The ongoing charges often tend to be lower too than with actively-managed funds.
It’s worth remembering, however, that artificial intelligence is a high risk sector and there is no guarantee that the companies backed by these funds will be successful. Only invest money that you can comfortably afford to lose.
Here are some of the best AI ETFs to watch.
Wisdom Tree Artificial Intelligence UCITS ETF
Wisdom Tree’s Artificial Intelligence UCITS ETF tracks the holdings and performance of the NASDAQ CTA Artificial Intelligence Index. The fund, which is worth $560 million, is run by Irish Life Investment Managers and provides access to a focused selection of companies working in the AI space. Currently, its top 10 holdings include Upstart, $1 trillion chipmaker Nvidia, C3.ai, and Blackberry.
The fund is ISA, SIPP and UCITS eligible and the total expense ratio is 0.4%. The lion’s share (86%) of the ETF is invested in the information technology sector, with 3.4% in consumer discretionary and 4.4% in financials. The top 10 holdings account for 32% of the total portfolio. Meanwhile, geographically, the fund is 64% allocated in the US, 14% in Taiwan, 3.5% in Japan and 4.3% in Holland.
Over the past year the fund has delivered impressive returns of 39%.
ROBO Global Robotics and Automation Index ETF
The ROBO Global Robotics and Automation Index ETF was the first such ETF to market in the US. Launched in 2013, it has 78 holdings and tracks its eponymous index. With $1.4 billion assets under management, the fund invests in companies specialising in AI, robotics and healthcare technology across 14 countries in both developed and emerging economies.
Its top 10 holdings include Symbotic, which is involved in warehouse robotics among other applications, Intuitive Surgical, a specialist in robotic surgery, UK grocery firm Ocado, ServiceNow, and the ever-popular AI stock, Nvidia.
It is more expensive than some other similar ETFs, with an expense ratio of 0.95%. However, it may be worth the expense having delivered a return of 30% year-to-date and 10% over the past five years.
Global X Autonomous & Electric Vehicles ETF (DRIV)
Run by Mirae Asset Management, this ETF invests in companies associated with autonomous vehicles, with global exposure across multiple sectors and industries, such as software and hardware production and lithium batteries. It tracks the Solactive Autonomous & Electric Vehicles Index.
The fund’s managers believe there is high growth potential in the sector, with electric vehicles only accounting for less than 12% of new cars sold in 2022, despite global registrations increasing by around 52% last year. Worth $746.6 million, its top 10 holdings include Toyota, Nvidia, Alphabet Holdings, which owns autonomous vehicle producer Waymo, Tesla and Honeywell.
The total expense ratio is 0.68% and over the year-to-date it has delivered a return of 26%, with 14% over three years.
iShares Automation and Robotics UCITS ETF
Robotics is an exciting area of artificial intelligence. Run by BlackRock, the iShares Automation and Robotics UCITS ETF seeks to invest in developed and emerging companies generating significant sales from robotics and automation. It tracks the STOXX Global Automation and Robotics Index. The fund, which is currently worth $3.1 billion, is UCITS, SIPP and ISA eligible and the total expense ratio is a reasonable 0.4%.
With 86 holdings, its top 10 investments include Lattice Semiconductor Corp, Sage Group, Nvidia, Advantest, and Bentley Systems.
On an annualised basis, the ETF fell by 34.2% in 2022, though has recovered by 21% year-to-date spurred by increased AI enthusiasm.
L&G Artificial Intelligence UCITS ETF
This fund seeks to replicate the ROBO Global Artificial Intelligence Index. Its managers believe that AI is a “long-term trend” that is “radically changing the way we live and work.”
Worth $273 million, the ETF’s investment strategy is supported by a team of experts in AI technology and is UCITS compliant. Its top 10 holdings account for 81% of the portfolio and include automation specialist Alteryx, retailer Alibaba, software firm Atlassian, cybersecurity provider Rapid7 and specialist chipmaker Nvidia.
Like most of the other AI ETFs listed above, the fund has performed poorly over one year due to the investor flight from tech stocks. Over one year it lost 21.4%, while over three years it delivered a return of 21.4% and 37.3% since launch in 2019.
Investors should bear in mind that the fund’s risk profile is listed by L&G as a 7, where 1 is the lowest and 7 is the highest risk rating. The ongoing charge is 0.49%.
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