Learn How to Invest in AI ETFs

Learn about artificial intelligence and the AI ETFs that capture this disruptive technology.

kent
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Research Lead
Reviewed by: Kent Thune
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Edited by: Kent Thune

Artificial intelligence has become a rapidly evolving disruptive technology, especially with the emergence of Microsoft’s ChatGPT and Google’s Bard. Learn how to invest in AI with ETFs, see details on the largest artificial intelligence funds and understand the associated benefits and risks of investing in this growing technology.

What Is Artificial Intelligence? 

Artificial intelligence (AI) refers to the development of computer systems that can perform tasks that typically require human intelligence, such as learning, problem-solving, perception and decision-making. AI can be categorized into several types, including machine learning, natural language processing, expert systems and robotics. 

  • Machine learning generally includes training algorithms to recognize patterns in data and make predictions based on that information.
  • Natural language processing focuses on enabling computers to understand, interpret and generate human language.
  • Expert systems are designed to solve complex problems by simulating the decision-making process of a human expert in a particular domain.
  • Robotics involves designing and programming machines to interact with their environment and perform tasks autonomously. 

AI has numerous applications in various fields, including health care, finance, transportation and entertainment. Artificial intelligence is used in medical diagnosis, financial fraud detection, self-driving cars and video game development, among many other applications. As AI technology advances, it has the potential to significantly impact and transform many aspects of society. 

What Types of AI Investments Are Available? 

There are several different types of AI investments available, each with its own unique characteristics and potential risks and rewards.

The most common types of AI investments are: 

  • AI ETFs: These are investment exchange-traded funds that hold a basket of AI-related stocks, allowing investors to gain exposure to the AI sector without having to buy individual stocks. These funds may track a specific AI-related index, such as the Nasdaq CTA Artificial Intelligence & Robotics Index. They offer exposure to a broad range of AI companies, similar to ETFs.
  • AI mutual funds: These are professionally managed funds that invest in a range of AI-related companies. Similar to AI ETFs, they can offer diversification and potentially lower risk compared to investing in individual stocks.
  • AI-focused venture capital funds: These are funds that invest specifically in AI startups and companies. They provide capital to early-stage AI companies in exchange for equity, with the expectation of high returns if the company succeeds. 
  • Direct investments in AI companies: Investors can also choose to invest directly in individual AI companies through stock purchases. This can be a high-risk/high-reward strategy, as individual companies may be more volatile than investing in a diversified portfolio. 

Top AI ETFs 

Artificial intelligence ETFs provide exposure to companies involved in the development and production of robots or artificial intelligence. With 30 ETFs traded on the U.S. markets, AI ETFs have total assets under management of $6.36 billion. The average expense ratio is 0.73%.

The top AI ETFs, as measured by AUM as of March 24, 2023, are: 

  • Global X Robotics & Artificial Intelligence ETF (BOTZ): With over $1.65 billion in AUM, BOTZ is the largest AI ETFs on the market. It tracks the Indxx Global Robotics & Artificial Intelligence Thematic Index, which includes companies that are involved in the development and application of AI and robotics technologies. 
  • ROBO Global Robotics and Automation Index ETF (ROBO): This ETF has $1.32 billion in AUM and is designed to track a global index of companies involved in robotics and automation. The portfolio uses a tiered weighting strategy. 
  • ARK Autonomous Technology & Robotics ETF (ARKQ): With $905.54 million in AUM, ARKQ is an actively managed ETF with a broad mandate to invest in companies that its managers identify as benefiting from automation and other technological advancements. 
  • iShares Robotics and Artificial Intelligence Multisector ETF (IRBO): With over $293.71 million in AUM, IRBO tracks the NYSE FactSet Global Robotics and Artificial Intelligence Index, which includes companies that are involved in the design, production or use of robotics and AI technologies. 
  • First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT): With over $228.49 million in AUM, ROBT tracks the Nasdaq CTA Artificial Intelligence and Robotics Index, which includes companies that are involved in the development and application of AI and robotics technologies. 
  • AI Powered Equity ETF (AIEQ): With over $108.97 million in AUM, AIEQ is an actively managed AI ETF that uses artificial intelligence to select and weight its holdings. It seeks to invest in companies that are likely to outperform based on various data inputs and machine learning algorithms. 

Benefits and Risks of Investing in AI ETFs 

Investing in AI ETFs offers multiple benefits, including exposure to a high-growth sector. However, there are associated risks that investors should consider before investing in an AI fund.

Here are some of the key benefits and risks to consider: 

Benefits of Investing in AI ETFs 

  • Exposure to a high-growth sector: AI is a rapidly growing industry, with the potential to transform many aspects of society. Investing in AI ETFs allows investors to gain exposure to this sector and potentially benefit from its growth. 
  • Diversification: ETFs hold a basket of AI-related stocks, providing investors with diversification across a range of companies and potentially reducing the risk of investing in a single stock. 
  • Lower costs: ETFs generally have lower expenses than actively managed funds, making them a cost-effective way to gain exposure to AI. 
  • Liquidity: ETFs are traded on stock exchanges, making them easy to buy and sell. 

Risks of Investing in AI ETFs 

  • Volatility: The AI sector can be volatile, and investing in AI ETFs can be risky, especially if there are sudden changes in the market or regulatory environment. 
  • Concentration risk: Some AI ETFs may be heavily concentrated in a few companies, which increases the risk of losses if those companies underperform. 
  • Technology risk: AI is a relatively new and rapidly evolving technology, and there is a risk that new developments could make current technologies obsolete. 
  • Market risk: ETFs, like all investments, are subject to market risk, and there is no guarantee that they will perform well. 

Bottom Line 

AI ETFs can be a smart way to capture the fast-growing disruptive technology of artificial intelligence. However, it's important to note these funds carry risks, including the potential for loss of principal, and that past performance does not guarantee future results. As always, it's important for investors to carefully consider their investment goals and to do research before investing in any ETF or other investment product. 

Kent Thune is Research Lead for etf.com, focusing on educational content, thought leadership, content management and search engine optimization. Before joining etf.com, he wrote for numerous investment websites, including Seeking Alpha and Kiplinger. 

 

Kent holds a Master of Business Administration (MBA) degree and is a practicing Certified Financial Planner (CFP®) with 25 years of experience managing investments, guiding clients through some of the worst economic and market environments in U.S. history. He has also served as an adjunct professor, teaching classes for The College of Charleston and Trident Technical College on the topics of retirement planning, business finance, and entrepreneurship. 

 

Kent founded a registered investment advisory firm in 2006 and is based in Hilton Head Island, SC, where he lives with his wife and two sons. Outside of work, Kent enjoys spending time with his family, playing guitar, and working on his philosophy book, which he plans to publish in the coming year.