Are these the best AI ETFs to watch?
How to access megatrends such as automation and robotics via ETFs
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Artificial intelligence (AI) is set to be one of the biggest megatrends of our time. The AI market was thought to be worth $27.2 billion in 2019, and is forecast to grow almost tenfold to $266.9 billion by 2027, according to Fortune Business Insights.
It's more than just Alexa or Siri and encompasses sectors such as automation, robotics, autonomous vehicles and cybersecurity. Of course, the rise of chatbots ChatGPT and Bard have only served to elevate interest in 2023.
Exchange-traded funds can be a good entry point into the sector, spreading risk by enabling investors to access a basket of companies rather than invest in individual shares. The ongoing charges often tend to be lower too than with actively-managed funds.
It’s worth remembering, however, that artificial intelligence is a high risk sector and there is no guarantee that the companies backed by these funds will be successful. Only invest money that you can comfortably afford to lose.
Best AI ETFs to watch
Here are some of what we think could be the best AI ETFs to watch. These have been selected for recent market news.
Wisdom Tree Artificial Intelligence UCITS ETF
Wisdom Tree’s Artificial Intelligence UCITS ETF tracks the holdings and performance of the NASDAQ CTA Artificial Intelligence Index. The fund, which is worth $560 million, is run by Irish Life Investment Managers and provides access to a focused selection of companies working in the AI space. Currently, its top 10 holdings include Upstart, $1 trillion chipmaker Nvidia, C3.ai, and Blackberry.
The fund is ISA, SIPP and UCITS eligible and the total expense ratio is 0.4%. The lion’s share (86%) of the ETF is invested in the information technology sector, with 3.4% in consumer discretionary and 4.4% in financials. The top 10 holdings account for 32% of the total portfolio. Meanwhile, geographically, the fund is 64% allocated in the US, 14% in Taiwan, 3.5% in Japan and 4.3% in Holland.
Over the past year the fund has delivered impressive returns of 39%.
ROBO Global Robotics and Automation Index ETF
The ROBO Global Robotics and Automation Index ETF was the first such ETF to market in the US. Launched in 2013, it has 78 holdings and tracks its eponymous index. With $1.4 billion assets under management, the fund invests in companies specialising in AI, robotics and healthcare technology across 14 countries in both developed and emerging economies.
Its top 10 holdings include Symbotic, which is involved in warehouse robotics among other applications, Intuitive Surgical, a specialist in robotic surgery, UK grocery firm Ocado, ServiceNow, and the ever-popular AI stock, Nvidia.
It is more expensive than some other similar ETFs, with an expense ratio of 0.95%. However, it may be worth the expense having delivered a return of 30% year-to-date and 10% over the past five years.
Global X Autonomous & Electric Vehicles ETF (DRIV)
Run by Mirae Asset Management, this ETF invests in companies associated with autonomous vehicles, with global exposure across multiple sectors and industries, such as software and hardware production and lithium batteries. It tracks the Solactive Autonomous & Electric Vehicles Index.
The fund’s managers believe there is high growth potential in the sector, with electric vehicles only accounting for less than 12% of new cars sold in 2022, despite global registrations increasing by around 52% last year. Worth $746.6 million, its top 10 holdings include Toyota, Nvidia, Alphabet Holdings, which owns autonomous vehicle producer Waymo, Tesla and Honeywell.
The total expense ratio is 0.68% and over the year-to-date it has delivered a return of 26%, with 14% over three years.
iShares Automation and Robotics UCITS ETF
Robotics is an exciting area of artificial intelligence. Run by BlackRock, the iShares Automation and Robotics UCITS ETF seeks to invest in developed and emerging companies generating significant sales from robotics and automation. It tracks the STOXX Global Automation and Robotics Index. The fund, which is currently worth $3.1 billion, is UCITS, SIPP and ISA eligible and the total expense ratio is a reasonable 0.4%.
With 86 holdings, its top 10 investments include Lattice Semiconductor Corp, Sage Group, Nvidia, Advantest, and Bentley Systems.
On an annualised basis, the ETF fell by 34.2% in 2022, though has recovered by 21% year-to-date spurred by increased AI enthusiasm.
L&G Artificial Intelligence UCITS ETF
This fund seeks to replicate the ROBO Global Artificial Intelligence Index. Its managers believe that AI is a “long-term trend” that is “radically changing the way we live and work.”
Worth $390 million, the ETF’s investment strategy is supported by a team of experts in AI technology and is UCITS compliant. Its top 10 holdings account for 20.9% of the portfolio and include NASDAQ blue chips Nvidia, Splunk, Alphabet, AMD, Microsoft and Amazon.
The fund is up 64% since launch in 2019 and 36% in the year-to-date. Investors should bear in mind that the fund’s risk profile is listed by L&G as a 7, where 1 is the lowest and 7 is the highest risk rating. The ongoing charge is 0.49%.
Past performance is not a guide to future returns.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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