- ARK Innovation ETF (NYSEARCA:ARKK)
- ARK Autonomous Technology & Robotics ETF (CBOE:ARKQ)
- Robo Global Robotics and Automation Index ETF (NYSEARCA:ROBO)
- ALPS Disruptive Technologies ETF (CBOE:DTEC)
- Defiance Quantum ETF (NYSEARCA:QTUM)
- Global X Autonomous & Electric Vehicles ETF (NASDAQ:DRIV)
- AI Powered Equity ETF (NYSEARCA:AIEQ)
Artificial intelligence (AI) is taking a variety of industries by storm and with that shift comes a plethora of investment implications. Fortunately, in what feels like a universe of thematic funds teeming with obscure products, some of the best ETFs to consider are AI funds.
What makes AI compelling for investors is its broad reach. Many investors often associate AI with robotics because some related ETFs blend both themes, but there’s more to AI, much more. AI reaches into fast-growing markets, including automation, autonomous vehicles, natural language processing and even social media.
Add to that list, AI is being used to reduce battery charging times for electric vehicles and to help medical professionals to detect and treat patients with the novel coronavirus.
Dozens of funds offer exposure to artificial intelligence stocks. Let’s explore some of the best ETFs for AI investments.
ARK Innovation ETF (ARKK)
Expense ratio: 0.75% per year, or $75 on a $10,000 investment.
Fun fact: the ARK Innovation ETF is on an asset-gathering tear of late and recently became the largest actively-managed, equity-based ETF. That means the fund is now known for something other than having one of the largest weights to Tesla (NASDAQ:TSLA), which currently comprises over 11% of the fund. However, ARKK is much more than just a “Tesla ETF.”
Although its investment approach is broad, ARK one of the best ETFs for AI exposure, as its managers can allocate to industrial innovation companies and automation firms, among others. ARKK also offers investors a front row seat to another important show: rapid advancements in AI training costs.
“The cost to train an artificial intelligence (AI) system is improving at 50x the pace of Moore’s Law,” said ARK analyst James Wang in recent note. “For many use cases, the cost to run an AI inference system has collapsed to almost nil. After just five years of development, deep learning — the modern incarnation of AI — seems to have reached a tipping point in both cost and performance, paving the way for widespread adoption during the next decade.”
As ARK notes, companies that can increase AI training speeds not only get a leg up on competitors, they boost revenue while trimming hardware costs.
ARK Autonomous Technology & Robotics ETF (ARKQ)
Expense ratio: 0.75% per year
If it’s Tesla exposure you’re after, the ARK Autonomous Technology & Robotics ETF has that in spades, allocating more than 12% of its weight to the electric vehicle maker’s stock. But as is the case with stablemate ARKK, there’s more to the ARKQ story.
Not only does the fund have autonomous transportation exposure — itself a robust AI market — there’s also ample allocations to automation and robotics companies.
Still, research confirms the autonomous vehicle industry is heavily dependent on AI technology and that’s a plus for the ARKQ thesis.
“Companies developing AV technology are mainly relying on machine learning or deep learning, or both,” according to IHS Markit. “A major difference between machine learning and deep learning is that, while deep learning can automatically discover the feature to be used for classification in unsupervised exercises, machine learning requires these features to be labeled manually with more rigid rulesets. In contrast to machine learning, deep learning requires significant computing power and training data to deliver more accurate results.”
Past performance isn’t a guarantee of future returns, but ARKQ has nearly doubed the returns of the S&P 500 over the past three years.
Robo Global Robotics and Automation Index ETF (ROBO)
Expense ratio: 0.95% per year
The Robo Global Robotics and Automation Index ETF is the original robotics ETF and with $1.06 billion in assets under management, remains a force in this category. While notable, that’s actually a superficial trait. What matters with ROBO is depth.
Compared to some of its AI ETF rivals, ROBO is quite diverse at the cap level, as it features almost equal exposure to large-, mid- and small-cap stocks. While rival funds often heavily focus on domestic stocks, ROBO’s nearly 90 holdings hail from more than 10 countries. None of those components exceed weights of 2%, so single stock risk is limited here.
Additionally, ROBO features exposure to nearly a dozen industries, giving it some diversity relative to competing funds, which are usually heavily allocated to just a handful of sub-groups within the technology sector.
ALPS Disruptive Technologies ETF (DTEC)
Expense ratio: 0.50% per year
Consider the ALPS Disruptive Technologies ETF an AI “lite” ETF because AI is just one of 10 themes represented in this fund. That doesn’t mean the fund is skimping on AI exposure. Rather, the opposite is true as AI intersects with most of the other themes represented in DTEC, including 3D printing, cybersecurity, healthcare innovation and internet of things.
Each of the 10 themes represented in DTEC is equally weighted and none of the holdings exceed weight of 1.92%, so both industry and single issue risks are minimal here. DTEC also proves that thematic exposure — of the right kind and properly structured — can hold up well in rough markets.
Down just 2% this year, DTEC is outperforming the S&P 500 by a wide margin. Much of that steadiness is due to sector-level attribution. In plain English, DTEC features no exposure to traditional energy stocks, light exposure to standard industrial and no old guard financial services firms, three of the worst-performing sectors this year.
Defiance Quantum ETF (QTUM)
Expense ratio: 0.40% per year
The Defiance Quantum ETF, as its name implies, focuses on the quantum computing space. Quantum computing relies heavily on machine learning, a sub-group within the broader AI space.
But for long-term investors, QTUM is an interesting idea for a couple of reasons. First, it’s cost-effective compared to other thematic ETFs. Second, the quantum computing market is on the cusp of massive, multi-year growth.
“According to a new report from McKinsey & Partners, in partnership with the Viva Technology show, the technology will have a global market value of $1 trillion by 2035,” notes the consulting firm. “Quantum computing is the use of quantum-mechanical phenomena such as superposition and entanglement to perform computation. In general, it is believed that quantum computers will help immensely with problems related to optimisation, which play key roles in everything from defence to financial trading.”
Quantum machine learning is still on the way, but in the meantime, quantum computing will affect industries including energy, finance and healthcare, to name just a few.
Global X Autonomous & Electric Vehicles ETF (DRIV)
Expense ratio: 0.68% per year
Perhaps surprisingly, the Global X Autonomous & Electric Vehicles ETF isn’t loaded up with Tesla stock, though that name is the fund’s third-largest holding at a weight of about 4%. Although DRIV addresses specific concepts, those being autonomous and electric vehicles, these are two arenas that intersect with AI in significant fashion.
Some of DRIV’s other top holdings, including Alphabet and Nvidia (NASDAQ:NVDA) offer significant AI footprints. In fact, Nvidia, is one of the leaders in the deep learning arena. The Graphic Processing Units (GPUs) made by Nvidia have other AI applications of note.
“Harvesting and picking without crushing the fruit or vegetable is now common practice for robots,” according to Global X. “Today’s robotic harvesters are equipped with cutting-edge Graphic Processing Units (GPUs) that can determine product ripeness, LiDAR-based autonomous navigation systems and 3D sensing capabilities.”
AI Powered Equity ETF (AIEQ)
Expense ratio: 0.77% per year
You can invest in AI or let AI invest on your behalf. The AI Powered Equity ETF does the latter, applying the power of IBM Watson to financial markets.
“The fund applies proprietary analytical algorithms to artificial intelligence (AI) technology, which can process over one million pieces of information per day, to build predictive financial models on approximately 6,000 U.S. companies,” says AIEQ’s issuer.
That large starting universe is whittle down to a current roster of 125 stocks, nearly 47% of which are healthcare and technology names.
There’s something to the AIEQ methodology as the fund is performing less poorly than broader benchmarks, such as the S&P 500, this year.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.