The artificial intelligence (AI) revolution is shaking Wall Street to its very foundations. The "Magnificent Seven" group of market-defining AI stocks all rank among the 12 highest-valued securities on the market today. Together, this group accounts for 32.3% of the S&P 500 (^GSPC 0.83%) index's total score, and 61.9% of the tech-heavy Nasdaq 100 index.
These are the market darlings of this era, all trading at lofty valuations and perhaps headed toward a painful price correction someday soon. What if you're not comfortable giving so much weight to a risky bunch of recent market beaters? Remember, past performance does not guarantee that future returns will be similar.
Well-known analyst Dan Ives just launched a hand-vetted fund that provides targeted investments in the AI boom, but with lower influence from the handful of top-ranked giants. Let's see what's different about this exchange-traded fund (ETF), so you can decide whether it belongs in your portfolio.
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This is not your average index fund
The Dan Ives Wedbush AI Revolution ETF (IVES 2.75%) is technically an index fund, but the underlying index is a custom list that simply reflects the stock pick in Ives' top-30 AI stock-picking reports. It was launched just days before the related ETF. So the index formulation is just a technicality. The Wedbush analyst with a long research history and a penchant for colorful suits is really making these stock picks in a very direct sense.
At the same time, the index structure adds some academic rigidity to the ETF. New additions to the index (and ETF) are given a cap-based weight between 1% and 4% of the total portfolio, no exceptions. The index is rebalanced four times a year, on the third Fridays of March, June, September, and December. The hard caps of at least 1% but no more than 4% are reapplied at each of these events, making sure that no single stock ever represents a huge slice of the Dan Ives ETF.
The annual expense ratio is 0.75%, far above the leading S&P 500 index funds and comparable to many handpicked stock collections.
How the portfolio is balanced
On June 30, just 27 calendar days after the ETF's inception, the "Magnificent Seven" stocks added up to 32.6% of the Ives fund's value. That's actually a smidge higher than their combined slice of the S&P 500, but megacaps Nvidia (NVDA 1.28%) and Microsoft (MSFT 1.58%) hold significantly lighter weights in the Dan Ives portfolio.
Nineteen of the 30 components ran into the 4% top-end weighting cap at the latest rebalancing, making alternatives such as IBM (IBM 1.39%) and Advanced Micro Devices (AMD -0.45%) just as important to the ETF's value as any of the Magnificent Seven.
Image source: Getty Images.
Will slow and steady win the AI race?
No ETF can guarantee market-beating returns, and AI is a volatile field right now. I can't guarantee that Ives' selections will outperform the broader market in the long run, or that the nearly equal-weighted nature of this fund is a better idea than the market cap weightings seen in many other ETFs.
But if you're looking for a lower-risk approach to the exciting but risky AI market, the Dan Ives AI Revolution ETF might hit the spot. Its careful rebalancing policy sets this fund apart from most of its rivals. Ives' decades of market analysis experience should be worth something, too.
The fund is too young to do a deep dive into its market performance, but it's off to a strong start in its first month of operation. Only time will tell how this ETF will stack up in the long run, but its lower risk profile could be right for your portfolio. After all, it will hurt less to hold the Dan Ives ETF if a top stock like Nvidia or Microsoft takes a big tumble.
As always, do your own research before you buy anything -- but if you want a smarter, more diversified way to play the AI revolution, this ETF might just fit the bill.
