Investing in artificial intelligence (AI) can be tricky, as many companies may not work out as you expect. However, not investing in AI seems like a mistake, as it will have a massive influence on future technological innovation. Because of that, investors might look toward exchange-traded funds (ETF), which can be used to invest in themes like AI.
If this sounds like the route for you, read on to find out why a high-quality ETF may be a top way to invest in AI without researching individual companies.
A quick ETF rundown
When looking at ETFs, there are a few essential items to pay attention to. First is the net assets. This is the amount of capital the fund has to manage. The higher this number, the more investors have entrusted their funds to the management company. If this figure is too small, it can indicate a lack of investors, which can raise a multitude of questions. If there's a sell-off, it may have to shut down its operations if the fund reaches too low of a level.
Second is the net expense ratio, or how much the management company charges you to run the fund. This number should be under 1% and ideally closer to 0.5% so that fees don't consume a large chunk of your long-term gains.
After an ETF passes those two checks, it's time to examine the fund's makeup. Many ETFs disclose all of their holdings to investors, while some choose to list the top 10. Either way, examining these businesses is crucial as their performance will make up a large part of the fund's performance.
So let's run a few AI ETFs through that checklist and see how they stack up.
Two ETFs with strong AI foundations
One of the top AI ETFs by asset value is the Global X Robotics & Artificial Intelligence ETF (BOTZ -1.24%). With $1.98 billion in assets, it has a large enough pool of money to maintain its operations even if AI hype bursts. With a 0.69% expense ratio, the fees shouldn't cut into performance too much, but it is still a bit on the pricier side.
Its top holding is, unsurprisingly, Nvidia. Nvidia is a top pick for many investors in the AI space, as its graphics processing units (GPUs) power multiple AI functions, including training AI and processing calculations. Nearly 12% of the fund's assets are tied up in Nvidia, so it's a heavy bet. Moving down the list are a few surprises, including Intuitive Surgical and Keyence. These companies may have some AI aspirations, but they are primarily focused on the robotics side of this ETF. So if you're looking for a pure-play AI ETF, this may not be the one for you. Still, it sports a diverse makeup and could be poised to outperform the market.
Another top ETF provider is iShares, and its Robotics and Artificial Intelligence Multisector ETF (ARTY -2.38%) is another excellent fund. While it only has $336 million under management, it has a reasonably cheap 0.47% expense ratio.
Once again, Nvidia makes the list as the top holding, but this ETF has Meta Platforms, a key AI researcher, as the second-largest holding. Spotify Technology is the third-largest holding, which is a bit of a head-scratcher, as it doesn't seem to like a natural fit under the robotics or AI umbrella.
This is one problem with ETFs; they may own stocks that you don't believe in or that don't seem to fit the broader narrative. However, they are completing the portfolio for you, so some grace needs to be given. As an alternative, you could use these ETFs as an idea generator for what individual stocks to invest in.
Regardless of what you choose to do, these are just two of the many AI-focused ETFs out there. If you're looking for more, check out this list and see if one of these ETFs fits your needs.