If you’re considering enhancing your investment portfolio’s exposure to artificial intelligence (AI) stocks, you might think that just buying a technology sector exchange-traded fund (ETF) would do the trick, right?
Consider the Technology Select Sector SPDR Fund (ticker: XLK) which, for a low 0.09% expense ratio, tracks 67 tech stocks from the S&P 500 index. Some AI-involved names in its top holdings include “Magnificent Seven” members Microsoft Corp. (MSFT), Nvidia Corp. (NVDA) and Apple Inc. (AAPL).
However, this ETF lacks exposure to other members of the Magnificent Seven with substantial AI involvement — namely, Amazon.com Inc. (AMZN), Tesla Inc. (TSLA), Meta Platforms Inc. (META) and Alphabet Inc. (GOOG, GOOGL).
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This is because most sector ETFs use the Global Industry Classification Standard (GICS) taxonomy, which means that what you envision as tech stocks may actually belong to consumer discretionary (Amazon and Tesla) or communications (Alphabet and Meta Platforms).
While you can shore up exposure by investing in the Consumer Discretionary Select Sector SPDR Fund (XLY) and the Communication Services Select Sector SPDR Fund (XLC), you also capture some restaurant and telecom companies that don’t have AI exposure.
The solution here is a thematic ETF, a more specific, targeted investment product that focuses on narrower trends or niches. For AI, thematic ETFs can either use specialized indexes or the manager’s own active research to deliver more pure-play AI exposure.
“We’re in the early stages of the AI cycle, and proper diversification is extremely important — be it across company stages or geographies — because it’s difficult to pick a winner or two this early,” says Tejas Dessai, assistant vice president and research analyst at Global X ETFs. “With a thematic ETF, you’re following an idea as opposed to a complex strategy.”
Here are six of the best AI ETFs to buy now:
| ETF | Expense ratio |
| Roundhill Generative AI & Technology ETF (CHAT) | 0.75% |
| Global X Artificial Intelligence & Technology ETF (AIQ) | 0.68% |
| Global X Robotics & Artificial Intelligence ETF (BOTZ) | 0.68% |
| Global X Data Center & Digital Infrastructure ETF (DTCR) | 0.50% |
| Invesco AI and Next Gen Software ETF (IGPT) | 0.60% |
| iShares Robotics and Artificial Intelligence Multisector ETF (IRBO) | 0.47% |
Roundhill Generative AI & Technology ETF (CHAT)
“Generative AI is the most exciting technological advancement in years, with the ability to transform how we live and work,” says Dave Mazza, CEO at Roundhill Investments. “We remain in the early stages of adoption and see investors starting to embrace the companies powering this trend.” To actively target companies involved specifically with generative AI, Roundhill offers CHAT.
“The ETF selects stocks using a proprietary methodology that combines a transcript score and sector score to evaluate companies’ relevance to generative AI, factoring in their revenue, profit, and R&D investment in AI technologies,” Mazza explains. “Companies are then scored and selected based on their exposure to AI, market capitalization, and liquidity.” CHAT charges a 0.75% expense ratio.
Global X Artificial Intelligence & Technology ETF (AIQ)
“AIQ offers a broad and comprehensive exposure to the entire AI value chain, with exposure that ends up looking quite like the Nasdaq-100 but is more tilted toward technology and mid-cap growth,” Dessai says. This ETF tracks the Indxx Artificial Intelligence & Big Data Index, which focuses on companies producing AI-necessary hardware or directly developing AI-related software.
At present, investors can expect a portfolio of 85 holdings totaling just under $2 billion in assets under management, or AUM. Top holdings include Nvidia, Netflix Inc. (NFLX), Broadcom Inc. (AVGO), Meta Platforms and Qualcomm Inc. (QCOM). The ETF is globally diversified, albeit with a 69% weight toward U.S. equities. It charges a 0.68% expense ratio and is tax-efficient, with a low 0.1% 30-day SEC yield.
Global X Robotics & Artificial Intelligence ETF (BOTZ)
“We see BOTZ as a more niche play on applied automation,” Dessai says. Compared to AIQ, BOTZ’s benchmark, the Global Robotics & Artificial Intelligence Thematic Index is less biased toward U.S. software developers and semiconductor manufacturers. Instead, the applied robotics emphasis of this index results in more health care and industrial sector representation, especially in Japan.
This can be seen with numerous top holdings such as Yaskawa Electric Corp. (6506.T) and Daifuku Co. Ltd. (6383.T), both of which have deployed AI and robotics solutions for industrial logistics in supply chain and manufacturing. Intuitive Surgical Inc. (ISRG), which makes the da Vinci surgical robot, is also present. BOTZ charges a 0.68% expense ratio and is fairly popular, with $2.7 billion in AUM.
[READ: Megatrends: AI and Robotics]
Global X Data Center & Digital Infrastructure ETF (DTCR)
“While Nvidia and the Magnificent Seven are still very relevant to the AI story, we think investors may also want to consider positioning themselves for the next lap of growth with this theme,” Dessai says. “In particular, we think that data centers, the growing use of alternative energy for AI processing needs as well as areas such as cybersecurity may be worth considering.”
For data center exposure with a twist of real estate investing, Global X offers DTCR. This ETF tracks the Solactive Data Center REITs & Digital Infrastructure Index, featuring a concentrated portfolio of 25 holdings such as Equinix Inc. (EQIX), American Tower Corp. (AMT), Crown Castle Inc. (CCI) and Digital Realty Trust Inc. (DLR). DTCR charges a 0.5% expense ratio and pays a 2.2% 30-day SEC yield.
Invesco AI and Next Gen Software ETF (IGPT)
“We believe the AI trend will broaden in scope to encompass additional segments of the market, with new technological advancements, a more stable interest rate environment and the ongoing impact of fiscal stimulus broadening innovation across multiple industries,” says Rene Reyna, head of thematic and specialty product strategy at Invesco. The firm’s offering for AI exposure is IGPT at a 0.6% expense ratio.
IGPT tracks the Stoxx World AC NexGen Software Development Index. “The index targets 100 companies from across the globe that generate revenue from various forms of software and artificial intelligence, such as data storage, robotics, autonomous vehicles, semiconductors and web platforms,” Reyna says. Notable top holdings include Alphabet, Nvidia and Meta Platforms.
iShares Robotics and Artificial Intelligence Multisector ETF (IRBO)
If you want to invest in AI while minimizing costs, the thematic ETF to watch is IRBO. Currently, it charges a 0.47% expense ratio, which works out to $47 in annual fees assuming a $10,000 total investment. However, you may wish to hold off on investing in this ETF until after Aug. 12, due to proposed changes to its benchmark index and investment objectives.
IRBO is expected to change its benchmark from the NYSE FactSet Global Robotics and Artificial Intelligence Index to the Morningstar Global Artificial Intelligence Select Index, which will likely affect its underlying holdings and their weights. In addition, the name of this ETF will be changing to the iShares Future AI & Tech ETF (ARTY). According to iShares, this change will not result in tax consequences.
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6 of the Best AI ETFs to Buy Now originally appeared on usnews.com
Update 07/01/24: This story was previously published at an earlier date and has been updated with new information.
