The equities to buy
Quant analysts at big French investment bank SocGen have scanned through the portfolios of the main listed US Artificial Intelligence ETFs to uncover the tech stocks most commonly held by these funds. They are Nvidia, Microsoft, AMD, Tesla, Autodesk, Salesforce, Alphabet, Adobe and Synopsys.
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Back here in the UK, there aren’t many AI ETFs, but we already have three funds with direct AI exposure and nearly £700m in assets under management between them. AI is hot.
But as with all focused, concentrated, niche, thematic exchange-traded funds, you’ll find a huge variation in what gets to be included in the index. The main distinction is whether AI is narrowly defined or whether robotics stocks are also included.
ETF performance is mixed
For example, L&G’s Artificial Intelligence UCITS ETF is designed to track the ROBO Global® Artificial Intelligence Index's performance, which comprises 60 AI stocks in 11 subsectors and 16 countries. Meanwhile, the WisdomTree Artificial Intelligence UCITS ETF aims to track the Nasdaq CTA Artificial Intelligence Index, which uses a completely different methodology to select stocks. Nvidia and Microsoft are the top two holdings in L&G’s offering, while WisdomTree’s Nasdaq index holds C3.Ai and Uipath Inc as the top two positions.
Given the hype about AI, and the inflow of funds into this space, you might think that returns from these funds – most of which are quite new – would be impressive.
Sadly though, you’d be wrong. Their track record is pretty mixed. Some funds have outperformed the market over the past three years, but others have drastically underperformed.
Would I buy an AI ETF? Probably not. Frankly, if you want exposure to this space, why not just buy Nvidia and Microsoft? Both are highly profitable and heavily involved in the sector. In Nvidia’s case via their GPU chips and in Microsoft’s case via their stable of AI-related investments, including ChatGPT and Nuance, a leader in cloud-based AI software.
David Stevenson has been writing the Financial Times Adventurous Investor column for nearly 15 years and is also a regular columnist for Citywire.
He writes his own widely read Adventurous Investor SubStack newsletter at davidstevenson.substack.com
David has also had a successful career as a media entrepreneur setting up the big European fintech news and event outfit www.altfi.com as well as www.etfstream.com in the asset management space.
Before that, he was a founding partner in the Rocket Science Group, a successful corporate comms business.
David has also written a number of books on investing, funds, ETFs, and stock picking and is currently a non-executive director on a number of stockmarket-listed funds including Gresham House Energy Storage and the Aurora Investment Trust.
In what remains of his spare time he is a presiding justice on the Southampton magistrates bench.
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