Are these the best AI ETFs to watch in Q1 2024?

Artificial Intelligence (AI) has arguably been the Exchange Traded Fund theme of choice in 2023. The ‘magnificent seven’ US tech shares have delivered the vast majority of the returns within the S&P 500 this year — driven by AI enthusiasm.

Indeed, the popular ‘picks and shovel’ AI stock — Nvidia — has seen its market capitalisation rise by 236% year-to-date to circa $1.2 trillion. Q3 results saw Nvidia’s revenue rise by a whopping 206% year-over-year $18.12 billion, with CEO Jensen Huang nothing that ‘NVIDIA GPUs, CPUs, networking, AI foundry services and NVIDIA AI Enterprise software are all growth engines in full throttle. The era of generative AI is taking off.’

The 2023 AI boom was arguably started by the launch of OpenAI’s chatbot, ChatGPT, but artificial intelligence has long been used across sectors including entertainment, social media, art, retail, security, sport analytics, manufacturing, self-driving cars, healthcare, and warehousing alongside dozens of other sectors.

For perspective, ChatGPT garnered over 1 million users in just five days — and now boasts over 100 million weekly active users. By contrast, it took Netflix three and a half years to hit the same milestone.

As with every technological step forward, there are some risks to consider. To start with, AI development is costly, and is therefore mostly driven by the blue chips. Further, many AI experiments fail, and many investors consider that diversifying their risk through an AI-themed ETF could be an attractive choice.

Of course, past performance is not an indicator of future returns. And no investment is risk free.

Best AI ETFs to watch

ROBO Global Robotics and Automation Index ETF

The ROBO Global Robotics and Automation Index ETF was the first ETF of its kind to hit the market in the US. Launched in 2013, it has 78 holdings and boasts $1.4 billion in assets under management. The fund is focused on businesses driving ‘transformative innovations in robotics, automation, and artificial intelligence.’

With holdings across both developed and emerging economics, the ETF contains companies ranging from fabless manufacturing company Keyence, warehouse robotics expert Symbotic, and robotic surgery specialist Intuitive Surgical.

It’s worth noting the higher-than-average expense ratio of 0.95%, though the fund has performed well in 2023.

Global X Robotics & Artificial Intelligence ETF

The Global X Robotics & Artificial Intelligence Thematic ETF, established back in 2016, aims to ‘invest in companies that potentially stand to benefit from increased adoption and utilization of robotics and artificial intelligence.’

The ETF holds 44 stocks, including semiconductor champion Nvidia, but also Swiss industrial manufacturer ABB and Japanese robotics company Fanuc, alongside Keyence and Intuitive Surgical. These two are also in the ROBO ETF above — which isn’t too surprising when the specialisation of both companies is considered.

The ETF is up by 35% over the past year and 70% over the past five years, but also has an elevated expense ratio of 0.68%. For perspective, a typical NASDAQ 100 index tracker might have an expense ratio of as little as 0.14%.

Wisdom Tree Artificial Intelligence UCITS ETF

The WisdomTree Artificial Intelligence UCITS ETF tracks the performance of the NASDAQ CTA Artificial Intelligence Index. The fund is run by Irish Life Investment Managers and provides access to a dedicated selection of companies working within the AI space.

Top holdings include Upstart, Nvidia, Blackberry, and the promising C3.ai — with the vast majority of the ETF invested in the information technology sector, and heavily concentrated in the US. The fund is ISA, SIPP and UCITS eligible with a middling expense ratio of 0.4%. This could appear good value given the strong performance over the past few years.

iShares Robotics and Artificial Intelligence ETF

The iShares Automation and Robotics UCITS ETF is a popular Blackrock offering, which invests in developed and emerging companies generating significant sales from robotics and automation. It tracks the STOXX Global Automation and Robotics Index.

The fund is worth more than $3 billion, and is UCITS, SIPP and ISA eligible. Like Wisdom Tree’s offering, it offers a reasonable expense ratio of 0.4%. With 86 holdings, its top 10 investments include Lattice Semiconductor Corp, Sage Group, Nvidia, Advantest, and Bentley Systems.

In common with most AI ETFs, the fund performed poorly in 2022 though rebounded sharply in 2023. This recovery may be set to continue given falling inflation and analyst hopes of a soft landing.

L&G Artificial Intelligence UCITS ETF

The L&G Artificial Intelligence UCITS ETF is run by a management team which believes that AI is a long-term trend that is ‘radically changing the way we live and work.’

The actively managed ETF picks stocks via a team of AI experts and is UCITS compliant. Significant holdings include the NASDAQ blue chips and ‘magnificent seven’ companies Alphabet, Nvidia, Microsoft and Amazon.

While the ETF has done very well since its launch in 2019, Legal & General considers its risk profile to be a 7, on a scale where 1 is the lowest and 7 is the highest risk. Further, it has a mildly expensive expense ratio of 0.49%.

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