There's no denying that artificial intelligence (AI) is one of the biggest and best investment opportunities of a lifetime. But let's face it -- the industry is moving (and evolving) faster than most investors can move with it. Yesteryear's hot names aren't necessarily tomorrow's winners. It's a lot of work!
Fortunately, there's a solution. Although it's not the only AI exchange-traded fund (ETF) to consider, the Dan Ives Wedbush AI Revolution ETF (IVES +0.03%) could be one of the top ways to plug into the industry's ongoing growth.
Who's Dan Ives, and why does he have his own ETF?
If the name rings a bell, there's a reason. While plenty of investment research firms employ high-profile analysts, Wedbush's Dan Ives is particularly prolific. A managing director of the firm, as well as Wedbush's senior technology stock analyst, he's regularly seen on television wearing brightly colored clothing. He's also good at his job. That's why so many of the market's participants make a point of seeking him out to pick his brain.
Now, he's making it easy to act on his insights (at least within the artificial intelligence arena). Last month, Wedbush launched the Dan Ives Wedbush AI Revolution ETF, built to reflect the performance of the Solactive Wedbush Artificial Intelligence Index. The Solactive index was also only recently established to serve as the basis for the fund itself and consists of the 30 companies that Ives highlights in his "Dan Ives AI 30 Research Report," which is updated every six months.
Current holdings include the expected names, such as Microsoft, Palantir Technologies, C3.ai, and Broadcom. But there are also a few less-familiar outfits that arguably should be part of a well-balanced mix of AI stocks as well.
NYSEMKT: IVES
Key Data Points
And it is well-balanced. Unlike several other artificial intelligence ETFs, this one isn't exactly cap-weighted. Although the sizes of its constituent companies play a role in how much of the fund is allocated to each, no single stock is allowed to make up more than 4% of its total value. Yet, none of its tickers can make up less than 1% of its total invested assets, either.
This means you're not overexposed to too many mega-companies and have some additional exposure to the smaller outfits that may offer more upside potential. The fund is rebalanced on a quarterly basis.
What makes the Dan Ives Wedbush AI Revolution ETF so unique
Then there's the eye-opening detail that really distinguishes this fund from its peers. As was noted, this ETF's holdings are touted as the personal picks of Dan Ives. And broadly speaking, they are. He's got a curious way of identifying his top prospects in the first place, however. See, while Ives may be hand-picking his favorite AI names for this fund, how Solactive is coming up with these potential picks is a bit unusual.
As the fund's prospect explains, Solactive uses a "proprietary natural language processing algorithm" that scours earnings call transcripts, news articles, SEC filings, and other text-based information about a particular company that's readily available via the worldwide web to identify businesses that generate at least half of their revenue through technologies like artificial intelligence software, high-performance semiconductors, AI infrastructure, and the like.
In other words, yes, this AI exchange-traded fund is using artificial intelligence to establish its universe of potential artificial intelligence stock picks, from which Wedbush's Dan Ives then selects what look like the best ones. As such, it is in an index fund, but in way it also isn't.
In this vein, note the Solactive Wedbush Artificial Intelligence Index was also only recently designed and created mostly to accommodate the Ives ETF, which requires a bit of discretionary flexibility rather than adherence to a regimented, formulaic assembly of stocks.
More index than not and an ideal way to play AI
It's not the first or only fund to employ some sort of automated selection process that looks beyond familiar fundamental criteria. However, it appears to be the first to employ this particular AI-driven approach. Cool.
The question is, will it work? Actively managed funds and too much discretionary trading activity have a history of underperforming buy-and-hold index funds, after all. For instance, over the past 10 years, Standard & Poor's reports that 84% of all large-cap mutual funds offered to U.S. investors failed to keep up with the benchmark S&P 500 index.
Things don't look meaningfully better for the five-year and 15-year lookbacks either. Given the discretionary, non-index aspect of the Dan Ives Wedbush AI Revolution ETF, it could arguably suffer the same underlying difficulty in trying to pick individual stocks rather than letting time and the broad market's bullish tide do the bulk of the work.
Image source: Getty Images.
This is one of these instances, however, where the spirit and application of the premise feels far more "indexy" than not.
Then there's the simple fact that the entire AI industry is apt to continue growing at a brisk pace for a long, long while. The United Nations Conference on Trade and Development expects the global AI market to grow from $189 billion in 2023 to $4.8 trillion by 2033. That's an average annualized growth pace of 38%, led by at least several of the 30 names in the Solactive Wedbush Artificial Intelligence Index.
In other words, yes, if you're looking for an easy, passive way to invest in the AI revolution, the Dan Ives Wedbush AI Revolution ETF looks more than up to the task. Just brace for the volatility that you know these names are going to be dishing out.
