Hot Hot, Artificial Intelligence. Invest ETFs Or Stocks?
I have posted about Artificial Intelligence (AI) yesterday - Too Late To Buy Artificial Intelligence Stock / ETF?
It is US market’s “flavour of the month” afterall.
In the post, I have shared a non-US pedigree stock, AI of course!
If you haven’t read it yet, feel free to click on above blue-link. Give a “LIKE” after ok. Tks!
The funny thing is, I was still thinking about the topic after.
Reason being:
When it comes to investing in stocks, the inherent (1) risks and (2) challenges come with the territory.
A stock could be subjected to:
High volatility.
Stiff competition.
Compliance & Regulation.
Ethical challenge/s.
So, how do I “participate” in AI-related investment and yet able to “mitigate” abovementioned risks?
My Thoughts and Analysis:
There are more than a handful of “good” companies in the market.
As a solo investor with a limited budget, it is impossible to scoop up all the good ones at a go.
A well-managed company (winner) is a well-managed company (winner), regardless of industry sector.
Applying the analysis, think it makes sense to pick a quality Exchange Traded Fund (ETF) that is AI-focused.
By investing in the “right” ETF, I would be investing effectively into a basket of quality companies. Agree?
Case “For” ETFs :
Diversification: Could provide exposure to a wide range of companies & industries that are involved in or benefit from AI,
Reducing the risk of relying on a single stock or sector.
Cost-efficiency: Could have lower fees & expenses than buying and selling individual stocks. Lower tax implications due to lower turnover is a possibility as well.
Accessibility: Easily bought and sold on stock exchanges, unlike some AI stocks that may have limited liquidity or availability.
Expertise: Managed by professional fund managers or follow well-established indexes that have rigorous criteria & methodologies for selecting and weighting AI stocks.
Case “Against” ETFs:
Tracking error: AI ETFs may not replicate the performance of their underlying indexes or benchmarks perfectly, due to factors eg. (a) fees, (b) expenses, (c) rebalancing, (d) market conditions, and (e) fund structure.
Dilution: It may include some stocks that are not directly related to AI or have low exposure to AI, diluting the potential returns and impact of the fund. It is imperative to read the factsheet and review the list of stocks in ETF’s holdings, periodically.
Overlap: AI ETFs may have significant overlap with each other or with other technology or thematic ETFs, reducing the diversification benefits and increasing correlation risk in the process.
Three Popular AI-centric ETFs : (reference only - as captain of your ship, homework & exercise due diligence is necessary!)
(1) $Global X Robotics & Artificial Intelligence Thematic ETF(BOTZ)$
Tracks the Indxx Global Robotics & Artificial Intelligence Thematic Index that consists of companies involved in the development or production of robotics and/or artificial intelligence.
It has an Asset Under Management (AUM) of $1.88 Billion and an Expense ratio of 0.68%.
BOTZ - top 5 holdings
(2) $iShares Robotics and Artificial Intelligence ETF(IRBO)$
Tracks the NYSE FactSet Global Robotics and Artificial Intelligence Index that consists of companies that produce robotics and artificial intelligence equipment, products, or services across multiple sectors.
It has an AUM of $311.67 Million and an Expense ratio of 0.47%.
IRBO - top 5 holdings
(3) $Robo Global Robotics & Automation ETF(ROBO)$
Fund tracks the ROBO Global Robotics and Automation Index that consists of companies that derive a portion of their revenue from:
Robotics-related
Automation-related products or
Services.
It has an AUM of $1.36 Billion and an Expense ratio of 0.95%.
ROBO - top 5 holdings
If I have to cherry pick, of the 3 ETFs shared, my goto ETF would be #1 - Global X Robotics & Artificial Intelligence ETF.
Do you think you will consider AI-related ETF instead of individual stock ?
Do you think you would choose (1) BOTZ, or (2) either of the other 2 ETFs or (3) something else altogether? Share your “Comments” ? Thanks.
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Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
This ETF has zilch pure play AI companies. That's why almost no one posts. They saw the holdings list and got outta here. My first time here too and won't be back. Beware of those wrapping a ribbon around an ETF and calling it an AI ETF.
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Great ariticle, would you like to share it?
Great ariticle, would you like to share it?