Leading AI ETFs and Their Impact on Investments

Recent mistakes made by artificial intelligence (AI) technology, impacting areas from astronomical imaging to men's health, have cast a spotlight on AI-driven chatbots such as OpenAI's ChatGPT and Google's Bard as of February. Although these flaws might slightly overshadow the potential of AI systems to take over the journalism sector, the industry is ripe for innovation and investment. Case in point, Microsoft Corporation (MSFT) extended its multi-billion dollar collaboration with OpenAI in January.

Investment Potential in AI: Top ETFs

Three highly-performing artificial intelligence (AI) exchange-traded funds (ETFs) present a comprehensive opportunity to invest in this swiftly evolving tech industry sector. The iShares Exponential Technologies ETF, Defiance Machine Learning & Quantum Computing ETF, and ROBO Global Robotics & Automation Index ETF outpace competitors in a market that's projected to hit a staggering $1.6 trillion value by 2030.

Key Highlights

News about AI errors has both shrouded its possibilities in journalism and simultaneously highlighted its sector's investment potential. Over the past year, the AI sector has lagged behind the broader market. Top contenders in this industry are the aforementioned ETFs. The largest holdings of each fund are Class A shares of SoFi Techologies Inc., Cirrus Logic Inc., and Harmonic Drive Systems Inc., respectively.

In the U.S., approximately eight distinct ETFs focus on AI, excluding inverse and leveraged funds as well as those with less than $50 million in AUM. As per the Nasdaq CTA Artificial Intelligence and Robotics Index, the industry benchmark saw a 16% drop compared to a 9% drop for the S&P 500 Index over the last year as of February 9.

Take note that some ETFs that employ AI for stock selection are sometimes referred to as AI ETFs. However, this narrative concentrates on ETFs targeting companies utilizing AI in various industries like robotics, automation, healthcare, and automobiles.

We will delve into the specifics of the three top-performing AI ETFs below, all data accurate as of February 8.

A Glance at the Top-Performing AI ETFs

iShares Exponential Technologies ETF (XT)

One-Year Performance: -8.4%
Expense Ratio: 0.46%
Annual Dividend Yield: 0.70%
Three-Month Average Daily Volume: 175,087
Assets Under Management: $3.3 billion
Inception Date: March 19, 2015
Issuer: BlackRock Financial Management

XT, a large-cap fund, targets the Morningstar Exponential Technologies Index, selecting worldwide stocks that employ exponential technologies capable of causing rapid disruption in their respective industries, including AI. Information technology stocks constitute over half of the portfolio at roughly 53%, followed by healthcare and industrials.

XT's top holdings comprise shares of SoFi Technologies (SOFI), an online loan refinancing firm; Class A shares of Coinbase Global Inc. (COIN), a premier cryptocurrency exchange operator; and Class A shares of Meta Platforms Inc. (META), the social media and metaverse company.

Defiance Machine Learning & Quantum Computing ETF (QTUM)

One-Year Performance: -9.5%
Expense Ratio: 0.40%
Annual Dividend Yield: 0.45%
Three-Month Average Daily Volume: 11,563
Assets Under Management: $112.2 million
Inception Date: Sept. 4, 2018
Issuer: Defiance ETFs

QTUM, a global multi-cap fund, utilizes the BlueStar Quantum Computing and Machine Learning Index as its guidepost. The Index features companies actively engaged in the research, development, and commercialization of quantum computing systems and materials.

The fund's prominent holdings include Cirrus Logic (CRUS), a provider of semiconductors; Class A sponsored ADRs of Baidu Inc. (BIDU), the Chinese AI and internet services corporation; and Class A shares of Alteryx Inc. (AYX), a firm specializing in data analytics software.

ROBO Global Robotics & Automation Index ETF (ROBO)

One-Year Performance: -12.8%
Expense Ratio: 0.95%
Annual Dividend Yield: 0.17%
Three-Month Average Daily Volume: 111,752
Assets Under Management: $1.4 billion
Inception Date: Oct. 22, 2013
Issuer: Exchange Traded Concepts

ROBO aims to mirror the performance of the ROBO Global Robotics & Automation Index, which measures the performance of companies active in robotics, automation, and AI. The ETF offers exposure to companies advancing intelligent systems technology capable of sensing, processing, and acting, as well as to companies that utilize that technology. The ETF employs a blended investment strategy, investing in a combination of value and growth stocks.

Top holdings of the fund include Harmonic Drive Systems (6324:TKS), a Japanese manufacturer of components for industrial robots and semiconductor manufacturing equipment; IPG Photonics Corp. (IPGP), a producer of fiber lasers; and Class A shares of Zebra Technologies Corp. (ZBRA), a company offering mobile computing software and analytics.

Please note that the observations, views, and analysis provided here are purely for informational purposes and should not be construed as individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we endeavor to ensure that the information provided is reliable, we do not guarantee its accuracy or completeness. The views and strategies outlined in our content may not be suitable for all investors. Since market and economic conditions can change rapidly, all comments, views, and analysis contained within our content are as of the date of posting and may change without notice. The content is not intended as a comprehensive analysis of all material facts concerning any country, region, market, industry, investment, or strategy.

Is Investing in AI ETFs a Good Idea?

To decide which ETF to invest in, consider the stocks the fund holds and how many of these are genuine AI companies. The fund's expense ratio, dividend yield, and past performance also merit consideration. You may choose to invest in a diversified portfolio of all four of these artificial intelligence ETFs.

As time progresses, AI technologies like chatbots are likely to become increasingly intelligent and integral to our everyday lives. AI already constitutes a global market worth hundreds of billions of dollars, with its extensive range of practical applications including facial recognition in smartphones, predictive algorithms in internet searches, smart home devices, and self-driving cars. Hence, keeping an eye on the AI market now might yield significant rewards in the future.

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