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AI ETF

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Playing the Artificial Intelligence (AI) Revolution

Spreading bets across industries, sectors and sub-sectors

 

AI has been an important driver of stocks in 2023, with the majority of US equity market gains coming from large and mega cap tech stocks that are perceived to be plays on AI. There are debates about whether Microsoft could be a winner and Alphabet could be a loser from Chat GPT, but both stocks are up this year. Therefore, some investors may simply play AI with a Nasdaq 100 tracker, such as US listed QQQ, though this represents a huge bet on a small number of mega cap stocks. Some 40% of the exposure is in just five stocks: Microsoft, Apple, Amazon, Nvidia and Alphabet, and the top ten stocks – adding Meta Platforms, Tesla, Broadcom and Pepsico - make up over 50% of the ETF, which owns 101 stocks (because there are two share classes for Alphabet).

In contrast, the L&G Artificial Intelligence UCITS ETF (Ticker AIAG for the LSE listed GBP class) holds 68 stocks compared, but is less concentrated in that its top ten stocks are around 19% of the portfolio.

 

It has 71.7% exposure to information technology, including chip makers Nvidia and Advanced Micro Devices and of course Microsoft, which has been exciting investors with its OpenAI offerings as well as Chinese giant Alibaba.

 

The next largest sector is consumer discretionary at 11.1%, which includes Amazon and Latin American e-commerce group Mercado Libre.

 

There is also a 5.6% weighting in healthcare, where Illumina has an open source AI package called SpliceAI, and recently joined forces with AstraZeneca to use AI for drug discovery.

Other sector exposures are communication services, financials and industrials. The case for taking a more diversified industry approach to AI is that we cannot easily predict which sectors will benefit most from a radical and disruptive new technology, which might turn out to have greatest impact outside the obvious plays in technology.

 

The ETF, which launched in 2019, tracks the ROBO Global® Artificial Intelligence Index TR, which has been published since 2018, by ROBO Global, whose index suite was just acquired by VettaFi. The methodology drills down into 11 sub-sectors that can benefit from AI growth, and also sets various other criteria including some minimum liquidity criteria for the stocks. The index is rebalanced four times a year, which should allow some scope for adding new firms that start to make a splash in AI.

 

ROBO offers a very similar ETF tracking the same index, ticker THNQ, which has a net expense ratio of 0.68% against an ongoing charge of 0.49% for the Legal and General product. In total 15 products globally license ROBO global benchmarks. If investors like a particular index, they should probably shop around to find the best ETF solution for that index. .

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Bernie Thurston

Bernie Thurston is the founder and CEO of Ultumus, a leading provider of ETF and index data, calculation, and workflow solutions. With over 20 years of experience in financial technology, Bernie has been at the forefront of index and ETF innovation since 2003.

His finance career began at Markit, where as Managing Director for Equities he designed and developed products for index and ETF composition and dividend forecasting from 2003 to 2011. He then founded and led DeltaOne Solutions as Managing Director, building it into a global provider of index and ETF trading data and technology services. The company managed over 100,000 multi-asset class products before being acquired by Markit in 2015.

Following the acquisition, while working for an ETF issuer, Bernie identified fundamental issues in how index and ETF data was represented across the industry. This led him to found Ultumus in 2016, building solutions for ETF primary market operations. Under his leadership, Ultumus has grown into a market leader serving major financial institutions globally, with its ETF Order Management System (OMS) supporting create and redeem workflows worldwide and its PCF platform calculating and distributing portfolio composition files for ETF issuers across every major market.

Bernie sold Ultumus to SIX Group in 2021, where it continues to expand across Europe, North America, and Asia-Pacific. Known for building lasting teams and leveraging cutting-edge technology, Bernie is focused on establishing Ultumus as the backbone of the global index and ETF industry through standardisation and automation.

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