AI ETFs: The Ultimate Guide for Investors in 2024

AI is also a rapidly growing industry, with a huge potential for innovation and value creation. According to a report by PwC, AI could contribute up to $15.7 trillion to the global economy by 2030, accounting for 14% of the world GDP. The same report estimates that AI could boost the GDP of China by 26% and the GDP of North America by 14.5% by 2030.

However, investing in AI is not easy, as it involves a high degree of uncertainty, complexity, and regulation. AI is a broad and diverse field, with many subdomains and applications. It is also a highly competitive and dynamic market, with new players, products, and breakthroughs emerging constantly. Moreover, AI poses ethical, social, and legal challenges, such as privacy, security, bias, accountability, and transparency, which could affect its adoption and regulation.

Investing in AI ETF

One way to overcome these challenges and gain exposure to the AI industry is to invest in AI exchange-traded funds (ETFs). AI ETFs are funds that track the performance of a basket of stocks that are involved in the development, adoption, or utilization of AI.

AI ETFs offer several benefits for investors, such as:

🔰 Diversification: AI ETFs allow investors to access a wide range of companies and sectors that are related to AI, without having to pick individual stocks. This reduces the risk of investing in a single company or industry that may underperform or fail.

🔰 Cost-efficiency: AI ETFs have lower fees and expenses than actively managed funds or individual stocks. AI ETFs also have lower trading costs, as they can be bought and sold on an exchange like any other stock.

🔰 Liquidity: AI ETFs have high trading volumes and market capitalization, which means they can be easily bought and sold at any time. AI ETFs also have lower bid-ask spreads, which means they have less price difference between buyers and sellers.

🔰 Transparency: AI ETFs disclose their holdings, strategies, and performance on a regular basis, which means investors can easily monitor and evaluate their investments. AI ETFs also follow standardized rules and regulations, which means they have less risk of fraud or manipulation.

The Best AI ETFs

There are many AI ETFs available in the market, each with its own focus, methodology, and performance. Some of the most popular and best-performing AI ETFs are:

• iShares Exponential Technologies ETF (XT)
• Defiance Machine Learning & Quantum Computing ETF (QTUM)
• ROBO Global Robotics & Automation Index ETF (ROBO)

iShares Exponential Technologies ETF (XT): This ETF tracks the Morningstar Exponential Technologies Index, which consists of companies that create or use exponential technologies that disrupt or transform the economy and society. The index covers nine themes, including AI, big data and analytics, cloud computing, cybersecurity, genomics, nanotechnology, robotics, and 3D printing. The ETF has 200 holdings, with the top three being Nvidia Corp. (NVDA), ServiceNow Inc. (NOW), and Shopify Inc. (SHOP). The ETF has an expense ratio of 0.47% and a year-to-date (YTD) return of 12.34% as of Jan. 9, 2024.

https://www.ishares.com/us/products/272532/ishares-exponential-technologies-etf

Defiance Machine Learning & Quantum Computing ETF (QTUM): This ETF tracks the BlueStar Quantum Computing and Machine Learning Index, which consists of companies that are involved in the research, development, or utilization of quantum computing and machine learning. The index covers four themes, including hardware, software, services, and applications. The ETF has 67 holdings, with the top three being Microsoft Corp. (MSFT), Alphabet Inc. (GOOG), and International Business Machines Corp. (IBM). The ETF has an expense ratio of 0.40% and a YTD return of 11.27% as of Jan. 9, 2024.

https://www.defianceetfs.com/qtum/

ROBO Global Robotics & Automation Index ETF (ROBO): This ETF tracks the ROBO Global Robotics and Automation Index, which consists of companies that are involved in the design, manufacture, or implementation of robotics and automation. The index covers 12 subsectors, including AI, computer vision, sensing, actuation, integration, healthcare, consumer, security, logistics, manufacturing, energy, and agriculture. The ETF has 86 holdings, with the top three being Zebra Technologies Corp. (ZBRA), Intuitive Surgical Inc. (ISRG), and Cognex Corp. (CGNX). The ETF has an expense ratio of 0.95% and a YTD return of 10.81% as of Jan. 9, 2024.

https://www.roboglobaletfs.com/

AI ETFs are a smart way to invest in the future of technology, as they offer exposure to a fast-growing and innovative industry, with lower risk, cost, and complexity than individual stocks. AI ETFs also have the potential to generate high returns, as they capture the value creation and growth of the AI market. However, AI ETFs are not without risks, as they are subject to market volatility, technological disruption, regulatory uncertainty, and ethical dilemmas. Therefore, investors should do their own research, understand the risks and rewards, and diversify their portfolio before investing in AI ETFs.

How to Choose an AI ETF

There are many factors to consider when choosing an AI ETF, such as:

• Objective: Investors should understand the objective and strategy of the AI ETF, and how it aligns with their own investment goals and risk tolerance. For example, some AI ETFs may focus on specific themes, sectors, or regions, while others may have a broader or more diversified approach. Some AI ETFs may also have active or passive management, which could affect their performance and fees.

• Performance: Investors should compare the historical and expected performance of the AI ETF, and how it compares to its benchmark and peers. Investors should also look at the volatility, Sharpe ratio, and drawdown of the AI ETF, which measure the risk-adjusted return, the excess return per unit of risk, and the maximum loss from peak to trough, respectively. Investors should also consider the dividend yield and distribution frequency of the AI ETF, which could affect their income and tax implications.

• Cost: Investors should consider the total cost of owning and trading the AI ETF, which includes the expense ratio, trading commissions, bid-ask spreads, and premium or discount. The expense ratio is the annual fee that the fund charges for its management and administration. The trading commission is the fee that the broker charges for executing the trade. The bid-ask spread is the difference between the highest price that a buyer is willing to pay and the lowest price that a seller is willing to accept. The premium or discount is the difference between the market price and the net asset value (NAV) of the fund, which reflects the supply and demand of the fund in the market.

• Quality: Investors should evaluate the quality and reputation of the fund provider, the index provider, and the fund holdings. Investors should look for fund providers that have experience, expertise, and resources in the AI industry, and that offer transparency, liquidity, and customer service. Investors should also look for index providers that have clear, consistent, and robust methodologies for selecting and weighting the fund constituents, and that provide regular updates and rebalancing. Investors should also analyze the fund holdings, such as their market capitalization, valuation, growth, profitability, and competitive advantage, and how they reflect the AI theme and strategy.

Final Thoughts

AI ETFs are a smart way to invest in the future of technology, as they offer exposure to a fast-growing and innovative industry, with lower risk, cost, and complexity than individual stocks. AI ETFs also have the potential to generate high returns, as they capture the value creation and growth of the AI market. However, AI ETFs are not without risks, as they are subject to market volatility, technological disruption, regulatory uncertainty, and ethical dilemmas. Therefore, investors should do their own research, understand the risks and rewards, and diversify their portfolio before investing in AI ETFs.