Exchange-traded funds (ETFs) are a great way to gain exposure to the hot field of artificial intelligence (AI). ETFs provide a diversified portfolio of AI stocks while typically charging low fees.
A new AI ETF emerged recently, and what makes this one stand out is that it's overseen by Dan Ives, the global head of technology research at Wall Street firm Wedbush Fund Advisors. Naturally, the fund, the Dan Ives Wedbush AI Revolution ETF (IVES 1.51%), is named after its founder.
But just because it sports the name of a well-known stock market analyst doesn't mean the ETF is a buy. Here's a deeper look into this new opportunity to invest in the hot field of artificial intelligence.
Image source: Getty Images.
What's in the Dan Ives ETF
Ives started his namesake ETF because he's excited about the transformative power artificial intelligence brings to every industry. He told Fox Business, "In 25 years covering tech, I've never seen a bigger theme than the AI revolution."
The fund is made up of 30 businesses across a number of industries ranging from semiconductor manufacturing and robotics to cybersecurity and consumer products. What ties these disparate companies together is that each has developed strong AI capabilities in their fields.
The Dan Ives Wedbush AI Revolution ETF encompasses many key players in the AI space, including tech stalwarts Microsoft, Tesla, Apple, Palo Alto Networks, and of course, AI darling Nvidia. Some newcomers to the AI arena are also included, such as SoundHound AI and C3.ai.
All 30 stocks were handpicked using Ives' proprietary investment framework. Ives intends to actively manage the roster of companies in his ETF, and the plan is to reconfigure and rebalance the stocks quarterly. At the time of this writing, Microsoft has the heaviest weighting in the ETF at 5.65%.
Ives described this process to CNBC, saying:
It's based on our research. So as new companies come in, then some companies could come out. This is a living organism, in terms of this AI 30. It's not static. And that's a key part of the theme here, because the theme will continue to evolve.
NYSEMKT: IVES
Key Data Points
More details about the Dan Ives ETF
While available to all investors, the ETF is aimed at retail investors. Ives explained there's "a heavy focus on retail for all the investors that follow me."
The Dan Ives Wedbush AI Revolution ETF charges an annual fee of 0.75%, which is higher than several other AI ETFs. That's not surprising because the fund is actively managed, so investors will be paying $75 annually in fees for every $10,000 invested.
In fact, Cullen Rogers, chief investment officer at Wedbush Fund Advisers, told CNBC, "We're kind of walking this line between active and passive."
This is actually a strength of Ives' ETF compared to a passively managed fund. The AI industry is dynamic and evolving rapidly. Having Ives and his team researching and staying on top of who the important AI players are across diverse industries is essential to the fund's performance over time.
And Ives wasn't modest when he highlighted another reason to invest in his ETF, telling Yahoo! Finance, "There is only one Dan Ives." He elaborated, "There are plenty of other great vehicles out there, but there's only one that encompasses my investing team and the research that investors have trusted me to deliver."
Factors to weigh before investing in Dan Ives' ETF
Is there enough reason to invest in the Dan Ives Wedbush AI Revolution ETF? It boasts a number of exceptional AI stocks. For example, it includes shares of Facebook parent Meta Platforms, which rose 42%, and Pegasystems, which skyrocketed 78% over the past 12 months.
But because the fund is so new, with an inception date of June 3, the ETF lacks a track record to assess how it's performed over time. Some of the veteran companies in the fund, for example, Nvidia, are a solid choice, but others, such as Soundhound, are newer businesses that may not succeed over the long run.
So there's risk this ETF can underperform the overall market. If so, you're better off opting for one of the ETFs focused on the S&P 500.
Moreover, the method Ives is taking with his fund warrants careful consideration. He told Yahoo! Finance: "I've never been too focused on valuations. It's about the themes, the best places, and the disruptors."
To say stock valuation is taking a bit of a back seat is concerning. It's also counter to how investing legend Warren Buffett approaches stocks. As Buffett has famously said, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
As a result, before deciding to invest, wait to see how the ETF performs over the next few quarters. This gives you some history to evaluate whether Ives can deliver worthwhile returns in the dynamic, ever-evolving AI industry.
