These are halcyon days for investors looking to access disruptive technology themes and trends. Always an epicenter of innovation, the technology sector is evolving to include themes such as artificial intelligence, quantum computing, robotics and electric and self-driving vehicles among other disruptive themes.
A slew of thematic exchange-traded funds (ETFs) provide access to the technology themes of tomorrow while helping investors remove the need for stock picking. While some of these funds have decent track records, an increasing number of robotics, electric vehicle (EV) and artificial intelligence ETFs, just to name of few, have come to market this year.
The rub with artificial intelligence ETFs, electric vehicles ETFs and the like is that many of these funds carry higher expense ratios than traditional sector funds. Many thematic funds also tilt toward smaller companies, meaning these funds can be more volatile than old guard, large-cap tech ETFs.
For patient investors with an appetite for risk, these are some of the best ideas among EV, robotics and artificial intelligence ETFs.
ROBO Global Robotics and Automation Index ETF (ROBO)
Expense Ratio: 0.95% per year, or $95 on a $10,000 investment.
The ROBO Global Robotics and Automation Index ETF (NYSEARCA:ROBO) recently celebrated its fifth birthday and is considered to be the fund that started the robotics ETF revolution. ROBO has $1.53 billion in assets under management and the success of this robotics fund has spurred the creation of several equivalent robotics ETFs trading in markets outside the U.S.
“The fund, which has delivered a 68.85 percent cumulative return since inception, invests in over 80 of the most innovative companies across the globe, spanning 12 subsectors from manufacturing to healthcare to sensing,” according to ROBO Global.
ROBO features exposure to large-, mid- and small-cap stocks and its standard deviation of just over 13% compares favorably with some other thematic technology ETFs. Like other robotics ETFs, ROBO is trading lower this year, but that decline could be an opportunity for prescient investors to get involved with this robotics funds at a compelling prices.
ALPS Disruptive Technologies ETF (DTEC)
Expense Ratio: 0.5%
The ALPS Disruptive Technologies ETF (BATS:DTEC) is a solid idea for investors new to disruptive investment themes because this fund does not focus on a specific theme. Rather, DTEC provides equal-weight exposure to 10 disruptive themes, including cloud computing, cybersecurity, fintech, mobile payments, robotics and artificial intelligence.
DTEC was caught up in the October meltdown that punished growth and momentum stocks, but prior to that, this new technology ETF performed admirably since coming to market late last December. In addition the aforementioned themes, another source of potential strength is its exposure to healthcare innovators.
“While AI has been used in medical technology for decades, the availability of vast amounts data, lower computing costs and more sophisticated algorithms mean revenues from AI tools are expected to soar to $6.7 billion by 2021 from $811 million in 2015,” Reuters reports, based on research from Frost & Sullivan.
DTEC’s 100 components are also equally weight, which mitigates single-stock risk in the fund.
ALPS Clean Energy ETF (ACES)
Expense Ratio: 0.65%
Among the new generation of technology investments, artificial intelligence ETFs and electric vehicle ETFs have a way of stealing some of the press, but investors should not overlook the viability of alternative energy as a next generation investment idea. The ALPS Clean Energy ETF (BATS:ACES), which debuted in June, is one of the newest ETFs to tap into the alternative theme.
Like its stablemate DTEC, the ALPS Clean Energy ETF does not isolate a single investment theme. Rather, ACES provides exposure to seven clean energy themes, including clean energy/smart grid technologies, fuel cells, solar and wind. ACES also has some credibility as an electric vehicle ETF, with exposure to EV companies and electric storage providers.
A key difference between ACES and DTEC is that the clean energy fund does not equally weight its industry exposures.
ACES also merits consideration by investors looking to access potentially long-lasting themes as well as those looking to move away from traditional energy investments.
“This shift is disruptive to traditional sources of energy, but it also presents a compelling and long-lasting investment opportunity for the companies and industries positioned for the change,” according to ALPS.
SPDR Kensho Intelligent Structures ETF (XKII)
Expense Ratio: 0.45%
The SPDR Kensho Intelligent Structures ETF (NYSEARCA:XKII) is a new way to approach infrastructure investing. It seems like investors are constantly hearing about infrastructure problems in the U.S. and other countries, particularly emerging markets. These companies are spending trillions on infrastructure projects. However, traditional infrastructure ETFs are not always responsive to those themes.
Old-school infrastructure ETFs are often heavily allocated to the energy and utilities sectors, meaning those products lack adequate leverage to higher-growth infrastructure fare. XKII solves some of that problem by allocating over 40% of its weight to technology stocks, a rare trait among infrastructure funds.
“Using XKII, investors can amplify an existing sector exposure towards the future of infrastructure, a pressing need given that McKinsey estimates the world needs to invest $3.3 trillion annually in infrastructure to meet global growth forecasts,” said State Street in a recent note.
Global X Robotics & Artificial Intelligence ETF (BOTZ)
Expense Ratio: 0.68%
The Global X Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ) is one of the primary rivals to the aforementioned ROBO. This robotics ETF tracks the Indxx Global Robotics & Artificial Intelligence Thematic Index and provides exposure to companies engaged in robotics and automation, non-industrial robots, and autonomous vehicles.
This robotics ETF holds 36 stocks, far less than rival ROBO. BOTZ sector allocations revolve heavily around healthcare, industrials and technology. The Global X robotics ETF has annualized volatility that is inline with ROBO’s.
Bolstering the long-term case for robotics ETFs, including BOTZ, is data from a recent Global X survey indicating that affluent investors are increasingly aware of the robotics opportunity set and increasingly likely to put capital to work within that theme.
KraneShares Electric Vehicles & Future Mobility ETF (KARS)
Expense Ratio: 0.68%
The KraneShares Electric Vehicles & Future Mobility ETF(NYSEARCA:KARS) is one of the first electric vehicle ETFs to come to market, having debuted in January. KARS follows the Solactive Electric Vehicles and Future Mobility Index.
That index “includes issuers engaged in the electric vehicle production, autonomous driving, shared mobility, lithium and/or copper production, lithium-ion/lead acid batteries, hydrogen fuel cell manufacturing and/or electric infrastructure businesses,” according to KraneShares.
Fundamental data underscore the validity of KARS and other electric vehicle ETFs. States, including California, and countries such as China, are pushing for increased EV adoption to reduce pollution. By some estimates, a third of all vehicles on the road by 2040 could be electric. The overall EV market “is projected to command $2.7 trillion of total investment before 2040,” according to KraneShares.
Global X Future Analytics Tech ETF (AIQ)
Expense Ratio: 0.68%
Having debuted in May, the Global X Future Analytics Tech ETF (NASDAQ:AIQ) is one of the newer additions to the artificial intelligence ETF fray. This artificial intelligence ETF also taps into another disruptive theme: big data. Importantly, AIQ is an unconstrained fund, meaning it can provide access to myriad sectors to accomplish its investment objective.
Home to 23 stocks, this artificial intelligence ETF provides exposure to six sectors, but AIQ is a tech-heavy fund with that sector commanding 62% of the ETF’s weight. AIQ slumped more than 15% in October. Investors looking to buy that dip should evaluate when semiconductor and software stocks will rebound because those are among AIQ’s largest industry weights.
Todd Shriber does not own any of the aforementioned securities.