With artificial intelligence (AI) stocks continuing to be a huge growth engine for the stock market, some of the most compelling investments are baskets of stocks that are packaged in specialty exchange-traded funds (ETFs). There are a variety of AI ETFs on the market -- and some of them are compelling buys right now because they are severely underperforming not only their historical performance, but also the greater market.
Three such funds come to mind -- the Ark Next Generation ETF (ARKW 2.65%), the iShares Future Exponential Technologies ETF (XT 1.71%), and the Roundhill Generative AI & Technology ETF (CHAT 3.32%). All of them are in the red over the last month, even as the S&P 500 shows a gain.
Data by YCharts.
However, history suggests that these funds are only experiencing some momentary weakness. The Ark ETF, led by Cathie Wood and Ark Invest, has a one-year return of 38.7%. The Roundhill ETF is even better, with a one-year return of nearly 50%. And the iShares ETF's one-year gain of 26.2% indicates that this fund is experiencing a minor hiccup.
All three funds are worth considering for any investor seeking exposure to a basket of AI stocks.
Ark Next Generation ETF
The Ark Next Generation ETF is an actively managed fund that invests in stocks under the theme of next-generation internet. The fund, which has $2.1 billion in assets under management, was created on Sept. 30, 2014, and is solely managed by Ark Invest CEO and chief stock picker Cathie Wood. It carries an expense ratio of 0.76%, or $76 annually for each $10,000 invested.
NYSEMKT: ARKW
Key Data Points
As you might expect, the fund places a heavy emphasis on technology stocks, which comprise 42% of its holdings. Communication services (23%), consumer cyclical stocks (17.8%), and financial services (16.4%) make up the rest. As of this writing, the fund contained 44 stocks, with the top 10 holdings accounting for 51% of the fund.
| Rank/Holding | Portfolio Weight | Rank/Holding | Portfolio Weight |
|---|---|---|---|
| 1. Tesla | 8.74% | 6. Robinhood Markets | 4.82% |
| 2. Roku | 5.86% | 7. Palantir Technologies | 3.75% |
| 3. Advanced Micro Devices | 5.67% | 8. Alphabet | 3.07% |
| 4. Shopify | 5.04% | 9. Circle Internet Group | 3.06% |
| 5. Coinbase Global | 4.87% | 10. Roblox | 3.02% |
Data source: Morningstar.
iShares Future Exponential Technologies ETF
The iShares Future Exponential Technologies ETF is operated by BlackRock through its subsidiary, BlackRock Fund Advisors. The company is a huge operator of ETFs, and currently has 468 funds available for investment.
Image source: Getty Images.
The XT ETF is an index of stocks representing companies that utilize or develop exponential technologies in both developed and emerging markets. The fund was created in March 2015 and has been managed since its inception by Jennifer Hsui. Several other fund managers have also been appointed in the last decade, with three currently identified as Peter Sietsema, Matt Waldron, and Steven White. The fund has an expense ratio of 0.46%.
This fund also has a heavy concentration of technology stocks (38.9%), but also includes a strong sampling of healthcare stocks (28.7%), with the rest of the fund spread among financial services, communication services, industrials, and utilities. The top 10 holdings make up 33% of the fund's weight.
| Rank/Holding | Portfolio Weight | Rank/Holding | Portfolio Weight |
|---|---|---|---|
| 1. Eli Lilly | 4.28% | 6. Amazon | 3.13% |
| 2. Nvidia | 3.93% | 7. Analog Devices | 3.11% |
| 3. Microsoft | 3.80% | 8. Johnson & Johnson | 2.82% |
| 4. Tesla | 3.78% | 9. Alphabet | 2.47% |
| 5. Texas Instruments | 3.56% | 10. AbbVie | 2.31% |
Data source: Morningstar.
With its reach across multiple sectors, the XT ETF holds 200 stocks, providing greater diversification than the ARKW ETF.
NASDAQ: XT
Key Data Points
Roundhill Generative AI & Technology ETF
The Roundhill Generative AI & Technology ETF is managed by Roundhill Investments, an investment advisor that has launched over 100 ETFs since its founding in 2018. The ETF, with total assets of $1 billion, was launched in May 2023 with six fund managers, all of whom have been heading the fund since its inception.
NYSEMKT: CHAT
Key Data Points
Roundhill markets the CHAT ETF as the world's first ETF that is focused on generative AI. The fund is focused on stocks that represent companies that are focused on AI, generative AI, and related technologies. The fund has the heaviest weighting of technology stocks of the three discussed in this list (72.3%), with smaller weightings in communication services (20.1%) and consumer cyclical stocks (6%). The fund holds 45 stocks, with the top 10 holdings representing 44% of assets.
| Rank/Holding | Portfolio Weight | Rank/Holding | Portfolio Weight |
|---|---|---|---|
| 1. Alphabet | 7.86% | 6. Samsung | 3.59% |
| 2. Nvidia | 6.24% | 7. Amazon | 3.47% |
| 3. Microsoft | 5.94% | 8. AMD | 2.92% |
| 4. SK Hynix | 3.98% | 9. Broadcom | 2.91% |
| 5. Meta Platforms | 3.96% | 10. Apple | 2.86% |
Data source: Morningstar.
The CHAT ETF includes more exposure to a greater number of "Magnificent Seven" stocks. It does not include Tesla at all, although Elon Musk's company is a top weighting in the other two funds on this list.
The CHAT ETF has an expense ratio of 0.75%.
Looking ahead at AI ETFs
While these funds are down right now, their one-year performance hints that the weakness in the last month is more of a fluke than a trend. For investors seeking diversified exposure to AI without betting on a single winner, these names all offer a reasonable entry point following a rare price pullback.
