Investing in Artificial Intelligence: Exploring ETFs
If you’re interested in investing in the stock market and want exposure to the artificial intelligence (AI) sector, consider using exchange-traded funds (ETFs). These funds aim to replicate the performance and returns of the AI industry.
Types of AI ETFs
There are two types of AI ETFs available: passively managed and actively managed. Passively managed ETFs track an AI-related index, while actively managed ones are curated by a fund manager who selects and manages a portfolio of AI securities.
Passive vs. Active Management
Actively managed funds introduce additional risk as the fund manager decides which securities to include and when to upgrade them. On the other hand, ETFs that replicate AI indexes generally have slightly lower risk.
Top AI ETFs for 2023
According to Forbes Advisor, some of the best AI ETFs for 2023 include Xtrackers Artificial Intelligence and Big Data UCITS ETF 1Cm, iShares Automation & Robotics UCITS ETF, Invesco EQQQ Nasdaq-100 UCITS ETF, and Amundi MSCI Robotics & AI ESG Screened UCITS ETF. JustETF also suggests WisdomTree Artificial Intelligence UCITS ETF USD and L&G Artificial Intelligence UCITS ETF.
Considerations when Choosing an AI ETF
When selecting an AI ETF to invest in, consider technical data such as assets under management, number of holdings, annual management costs, performance, and volatility. It’s important to thoroughly research each option before making a decision.
The Volatility of the AI Market
The performance of AI investments can vary. For example, the Nasdaq CTA AI & Robotics index outperformed the S&P 500 and Nasdaq 100 index in 2020 and 2021 but experienced greater losses in 2022. It’s crucial to note that AI ETFs may not necessarily outperform other stock market or tech market investments.
Untapped Potential in the AI Market
The AI market has significant untapped growth potential, although it mainly consists of a few high-performing companies. Additionally, there are currently limited listed companies exclusively focused on AI, which impacts the composition of indexes and managed portfolios.
The Growth of AI
According to McKinsey, over 50% of companies now use artificial intelligence, compared to just 20% in 2017. The demand for AI services is projected to reach $2 trillion by 2030, indicating continued growth opportunities.
Diversification Beyond AI
AI rarely operates independently and often interacts with other technology sectors like big data and robotics. Some funds focus on companies primarily engaged in AI, while others include established large-cap companies investing heavily in AI. Advisors recommend considering markets benefiting from AI, such as healthcare and industry.
Prevalence of U.S. Equity
It’s worth noting that ETFs on artificial intelligence tend to have a significant exposure to U.S. equities.
Hot Take: The Future of AI Investing
Investing in artificial intelligence offers potential opportunities for growth, but it also comes with risks. While AI ETFs can provide exposure to this innovative sector, it’s essential to thoroughly research and consider various factors before making investment decisions. Diversification across sectors and careful evaluation of ETF characteristics can help navigate the evolving landscape of the AI market.
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