The 3 Best Artificial Intelligence ETFs to Buy for Long-Term Growth
If a tech-related trend is hotter than artificial intelligence (AI), I’d love to know what it is. Everyone seems to be developing something AI-related, which is why investors have gotten excited about artificial intelligence ETFs. Why try to pick the next developer of a ChatGPT-like product when you can invest in a collection of AI-related businesses and ride the trend to victory?
According to VettaFi, there are currently 36 artificial intelligence ETFs to choose from. While some of these are broader technology funds, a number of them specifically mention AI in their name. The latter funds obviously offer less diversification, but also more exposure to this exciting sector.
Below are my three favorite artificial intelligence ETFs.
| BOTZ | Global X Robotics & Artificial Intelligence ETF | $23.76 |
| AIVL | WisdomTree U.S. AI Enhanced Value Fund | $87.63 |
| IRBO | iShares Robotics and Artificial Intelligence Multisector ETF | $29.27 |
Global X Robotics & Artificial Intelligence ETF (BOTZ)
Global X Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ) tracks the performance of the Indxx Global Robotics & Artificial Intelligence Thematic Index.
According to the artificial intelligence ETF’s prospectus, the index is a collection of global companies involved in developing robotics and artificial intelligence. The index includes four themes: AI, industrial robotics and automation, unmanned vehicles and drones, and non-industrial robotics.
Launched in September 2016, BOTZ has $1.59 billion in net assets and charges 0.68% annually, or $68 per $10,000 invested.
A look at the fund’s top 10 holdings reveals a current leaning toward robotics, which is fine. According to Research and Markets, the global robotics market is expected to grow from $55 billion in 2021 to $91 billion by 2026 — a compound annual growth rate (CAGR) of 10.5%. But it also has a solid AI focus. For instance, its No. 1 holding by weight at 8.7% is Nvidia (NASDAQ:NVDA), which dominates in AI-related activities. Nvidia’s graphic processing units (GPUs) essentially built ChatGPT.
Currently, BOTZ has 44 holdings. Its top 10 account for 62.4% of the ETF’s net assets. The top three countries by weight are the U.S. (42.9%), Japan (35.7%) and Switzerland (11.9%).
WisdomTree U.S. AI Enhanced Value Fund (AIVL)
The WisdomTree U.S. AI Enhanced Value Fund (NYSEARCA:AIVL) has $381.7 million in net assets. It is actively managed and charges a very reasonable 0.38%, or $38 per $10,000 invested. AIVL uses “a proprietary, quantitative artificial intelligence model” developed by Voya Investment Management, which sub-advises the fund, according to the ETF’s summary prospectus.
The 102 holdings held by AIVL are chosen from a larger group of companies that exhibit value characteristics. To be considered for inclusion in this larger group, a stock must be U.S-listed, have a minimum market capitalization of $100 million, an average daily value of $100,000, and have traded 250,000 shares daily, on average, over the past six-month period.
To fund’s selection model focuses on stocks with low price-to-book (P/B) and price-to-earnings (P/E) ratios and above-average free cash flow. The AI model selects between 60 and 190 stocks that meet these value characteristics each month. Each stock can represent up to 6% of the entire portfolio.
Due to its monthly update, it’s not surprising that the fund’s turnover is high at 96%. This means it changes the whole portfolio annually. By comparison, the turnover of the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is 2%, meaning it turns the entire portfolio once every 50 years.
AVIL outperformed the broader market over the past year, down 9.6% compared with a 12.3% loss for SPY. However, it’s done worse over the past two years.
The use of AI in investment management is just getting started as investment managers become more comfortable with the technology. AIVL offers investors an intriguing way to play the AI movement.
iShares Robotics and Artificial Intelligence Multisector ETF (IRBO)
iShares Robotics and Artificial Intelligence Multisector ETF (NYSEARCA:IRBO) is the smallest of today’s artificial intelligence ETFs to buy, with $285.9 million in net assets. It charges 0.47%, or $47 per $10,000 invested.
Launched in 2018, IRBO tracks the performance of the NYSE FactSet Global Robotics and Artificial Intelligence Index, which is “composed of developed and emerging market companies that could benefit from the long-term growth and innovation in robotics technologies and artificial intelligence.”
According to the fund’s prospectus, it selects companies involved in robotics and AI from 43 countries. To make it into the index, a company must have a minimum float-adjusted market cap of at least $500 million and an average daily trading value of $2 million.
Geographically, the fund’s top three regions by weight are the U.S. (53.6%), China (12.8%) and Japan (9.9%). The 118 holdings in the fund have combined P/E and P/B ratios of 20.1 and 2.5, respectively.
The top 10 holdings account for just 11.4% of the portfolio, meaning the artificial intelligence ETF offers a good amount of diversity across the space. Companies you might be familiar with in the top 10 include Meta Platforms (NASDAQ:META) and Spotify Technology (NYSE:SPOT).
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
