5 Best AI ETFs You Need to Buy in 2023
As we step into the golden era of Artificial Intelligence (AI), the investment landscape is shifting towards high-growth industries like AI. The U.S. stock market has shown a remarkable rally in 2023, with tech giants like Nvidia, Apple, Microsoft, and Alphabet leading the way. With AI becoming a priority across various sectors, thematic ETFs (Exchange-Traded Funds) focusing on AI have emerged as a viable investment option. Here’s a comprehensive guide to understanding AI ETFs and the top 5 you need to consider investing in.
What is AI ETFs？
AI ETFs are investment funds that provide exposure to a broad basket of AI industry companies. By following various indexes or implementing specific rules, these ETFs allow investors to invest in AI without the difficulty of identifying individual winners. They offer diversification across company stages and geographies, making them an appealing option for those looking to invest in the burgeoning AI market.
| Name | Bid | 1-Year Return | Expense Ratio |
|---|---|---|---|
|
Global X Artificial Intelligence & Technology ETF |
$28.18 |
-23.18% |
0.68% |
|
Global X Robotics & Artificial Intelligence ETF |
$27.13 |
18.09% |
0.69% |
|
iShares Robotics and Artificial Intelligence ETF |
$32.45 |
11.62% |
0.47% |
|
First Trust Nasdaq Artificial Intelligence ETF |
$43.95 |
5.77% |
0.65% |
|
Robo Global Robotics & Automation ETF |
$55.52 |
8.61% |
0.95% |
1.Global X Artificial Intelligence & Technology ETF (AIQ)：A Broad Bet on AI Stocks
Investor sentiment towards AI is highly positive, according to Dessai. The emergence of diverse applications is anticipated to drive investments in essential tech components like software, hardware, processors, and storage, fueling the growth of the tech sector. Global X provides exposure to AI stocks through AIQ, which mirrors the Indxx Artificial Intelligence & Big Data Index.
AIQ’s holdings span 87 globally diversified assets. While U.S. equities dominate at approximately 65%, Chinese and Korean stocks constitute 9.7% and 4.4% respectively. The ETF also includes stocks from Germany, Ireland, Canada, and Japan. Operating at an expense ratio of 0.68%, AIQ appeals to investors seeking broad AI exposure.
- Reasons to Buy:
- Globally diversified with 87 holdings.
- Dominant U.S. stocks with decent allocation to Chinese and Korean stocks.
- 0.68% expense ratio.
Best Suited For: Investors looking for a broad exposure to AI.
2.Global X Robotics & Artificial Intelligence ETF (BOTZ)：Investing in the Brain and Body of AI
BOTZ complements AI with its focus on robotics, forming a holistic investment strategy that leverages both “brain” and “body.” The ETF, following the Indxx Global Robotics & Artificial Intelligence Thematic Index, encompasses tech firms developing AI and companies deploying AI and robotics in industrial and healthcare sectors.
BOTZ displays a larger allocation to Japanese and Swiss equities, at 28.7% and 10.1% respectively. While prominent AI beneficiaries like Nvidia hold top positions, the ETF offers exposure to foreign industrial and healthcare enterprises employing AI and robotics. With a 0.69% expense ratio, BOTZ caters to investors looking for diversified AI and robotics exposure.
- Reasons to Buy:
- Sizable allocation to Japanese and Swiss equities.
- Focuses on efficiency and automation.
- 0.69% expense ratio.
Best Suited For: Investors looking to invest in both AI and robotics.
3.iShares Robotics and Artificial Intelligence Multisector ETF (IRBO)：Diversification in AI
Cunnison underscores the existing AI exposure within diversified portfolios and the role of both direct and indirect AI investments. IRBO, an iShares offering, tracks the NYSE FactSet Global Robotics and Artificial Intelligence Index. Notably, its equal-weighted index approach ensures balanced allocations among its 113 global holdings, reducing concentration risk. The ETF maintains a competitive 0.47% expense ratio.
- Reasons to Buy:
- Equal-weighted index reducing concentration risk.
- 113 global holdings.
- 0.47% expense ratio.
Best Suited For: Investors seeking diversification in AI.
4.First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT)：Exposure to Smaller AI Industry Stocks
Cunnison critiques certain AI ETFs for resembling growth index funds, despite their higher expense ratios. He highlights the limited AI contribution within larger tech companies’ operations. For exposure to smaller AI players, ROBT offers a unique perspective. It tracks the Nasdaq CTA Artificial Intelligence and Robotics Index, categorizing companies as AI enablers, engagers, or enhancers. Engagers hold the highest weighting at 60%, with equal-weighted stocks within each category.
- Reasons to Buy:
- Strict qualitative and quantitative screeners.
- Focus on AI enablers, engagers, or enhancers.
- 0.65% expense ratio.
Best Suited For: Investors seeking exposure to smaller AI companies.
5.Robo Global Robotics & Automation ETF (ROBO)：Proxy AI Exposure with Robotics Focu
ROBO provides proxy AI exposure through its focus on robotics and automation, along with notable AI industry representation. Around 13% of its industry classification pertains to “computing & AI.” The ETF maintains a global portfolio, with U.S., Japanese, and German stocks comprising significant portions. Large- and mid-cap stocks contribute equally at 44% each.
The ROBO Global Robotics and Automation Index, comprising 78 holdings from 14 developed and emerging-market countries, spans the robotics, AI, and automation value chain. Despite an expense ratio of 0.95%, ROBO has amassed over $1.5 billion in assets under management (AUM).
Reasons to Buy:
- Globally diversified with 46% in U.S. stocks.
- Balance between large- and mid-cap stocks.
- 0.95% expense ratio.
Best Suited For: Investors seeking AI exposure through robotics.
Risks and Limitations of Investing in AI and AI ETFs
Investing in AI and AI ETFs is not without risks. Here’s a detailed look at some of the potential challenges:
- Market Volatility: AI is an emerging field, and the stocks related to AI can be highly volatile.
- Regulatory Risks: Changes in regulations can impact the AI industry and, consequently, the performance of AI ETFs.
- Technology Risks: Rapid technological changes can make certain AI technologies obsolete, affecting the underlying holdings of AI ETFs.
- Concentration Risks: Some AI ETFs may have a concentration in specific sectors or companies, leading to increased risk.
- Expense Ratios: The cost of managing AI ETFs can vary, and higher expense ratios can eat into returns.
See more：What is Quantum AI Stock and How to Buy Quantum AI Stock?
Conclusion
AI ETFs present a unique opportunity to invest in the future of technology. With the right understanding and careful selection, they can be a valuable addition to your investment portfolio. The top 5 AI ETFs listed here offer varied opportunities catering to different investment needs. As with any investment, understanding the risks and aligning with your investment goals is key to success.