As of June 5, 2023, there are nine exchange-traded funds (ETFs) focusing on artificial intelligence (AI) with a total asset value of at least $1 billion. The AI connection is fairly loose in some cases. Others are so broadly diversified that it's hard to find a specific target area for the included investments.
There is nothing wrong with investing in these ETFs. They come with low cost ratios, solid management firms like Vanguard or iShares, and could be just what you're looking for in some cases. The iShares US Technology ETF is the biggest name on the list, following nearly 140 American tech companies with market-beating results over the last five and 10 years. Or you could go for the SPDR S&P Kensho New Economies Composite ETF, which tracks 550 companies of "the fourth industrial revolution," some of which are AI businesses. If that's what you want, this ETF is a great way to dip into that broad category of investments.
But if you really want to double down on the AI opportunity, I think you should take a closer look at the Global X Robotics & Artificial Intelligence ETF (BOTZ 0.55%) instead.
What is this ETF all about?
Many sector-tracking ETFs tie their stock choices to a market index. The Global X Robotics & Artificial Intelligence ETF is no exception, aiming to match the performance of the Indxx Global Robotics & Artificial Intelligence Thematic Index. In turn, that index seeks to capture the market performance of "companies that are expected to benefit from the increased adoption and utilization of robotics and artificial intelligence."
So the investing philosophy behind this fund is clearly directed at the fields of robotics and AI -- two sectors that go hand in metallic hand and often join forces in AI-driven robotic products.
There are only 44 different stocks in this highly targeted ETF. And the surgical precision is only fitting when you see the fund's largest holdings.
The top three holdings
The Global X Robotics & Artificial Intelligence ETF's largest holding today is semiconductor designer Nvidia (NVDA 0.76%). The inventor behind many of the microchips used for training and then running AI systems today accounts for 11.3% of the ETF's net asset value -- up from 7.5% at the end of 2022. Nvidia's explosive price gain is a head-turner of a story, and it stands to reason that an AI-themed stock fund would have a large slice of Nvidia pie on its plate these days.
Next, you'll find robotic surgery specialist Intuitive Surgical (ISRG -0.41%) at 9.3% of Global X Robotics & Artificial Intelligence ETF's total value. That's down from 11.2% five months ago but only because Nvidia and others are soaring so high in 2023. The market value of the fund's Intuitive Surgical holdings rose from $145 billion to $216 billion. The maker of the da Vinci surgery robot is hardly resting on its laurels here. And yes, this particular stock leans toward the robotic half of the fund's two stated target markets, but those da Vinci robots would be far less stable, safe, and helpful if the robotic system didn't give human surgeons an AI-powered guiding hand.
Rounding out the top three is Japanese automation expert Keyence (KYCCF 2.85%) at 8.1%, down from 9.3% at the end of 2022. This company's AI expertise lies in real-time analysis of visual data, useful in applications such as industrial process management, quality control, and automated tracking across global supply chains.
I happen to own two of these top-three holdings myself, and I see many interesting AI picks further down that 44-ticker list.
Performance and prospects
The fund has largely kept pace with the S&P 500 index since its inception in 2016, but the Global X Robotics & Artificial Intelligence ETF took a heavy hit from last year's de-risking market sentiment. As a result, the ETF is on the upswing in 2023 but has a long way to go before patching up last year's hurried haircut:
I would argue that the clear focus on stocks in the AI sphere sets the Global X Robotics & Artificial Intelligence ETF to outperform the broader market for at least a few years and maybe much longer. Therefore, I see the current underperformance as a buying opportunity.
It should be noted that this fund's expense ratio is a little heavier than most index-based ETFs, clocking at an annual 0.69% rate. However, it's your best bet for tracking this particular market index since the only other option comes with about twice the expense ratio, a leverage-boosted market risk, and inferior long-term returns:
So if you're looking for a diversified yet tightly focused way to invest in the emerging artificial intelligence opportunity, the Global X Robotics & Artificial Intelligence ETF is the exchange-traded fund to beat, in my book.
