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Jun 29, 2023

Insights From ETFs Getting exposure to the next wave of innovation

by Michael Huynh

Artificial Intelligence (AI) has promised to become a game changer in the tech world for many years. Over the last few years the technology was slow to be adopted and largely felt like it was a “buzzword” for founders or start-up companies to raise capital. However, things have changed in 2023 as generative AI languages such as ChatGPT has demonstrated its power by being able to interpret and learn from vast amounts of data.

AI is a potentially disruptive technology and its broad applications to improve productivity and efficiency across professions are expected to be significant. The prominent companies on top of the AI revolution include Nvidia, AMD, Microsoft, Alphabet (Google), Tesla, etc. These companies have spent a fortune on Research and Development (R&D) to develop AI technologies not only to improve users’ experience but also to build a competitive advantage. We think investing in the long-term secular tailwind of technology makes sense as long as investors pay a sensible price for the companies they purchase. Investors can approach this field through a basket approach by owning a diversified portfolio of names. Below are three ETFs that offer an exposure to the AI theme:


Global X Robotics & Artificial Intelligence ETF (BOTZ)

The Global X Robotics & Artificial Intelligence consists of companies across multiple sectors, industries, and markets where companies are expected to benefit from the increasing adoption of robotics & AI that are beyond industrial activity. BOTZ has $1.78 billion in assets under management (AUM), with a twelve-month trailing yield of 0.66%. BOTZ’s portfolio is quite concentrated with the top five largest positions accounting for approximately 40% of the total portfolio. Its top five holdings consist of Intuitive Surgical Inc., a developer and manufacturer of da Vinci Surgical System, which enables complex surgery, enhancing the quality and access to invasive care, Nvidia Corp, one of the key players in the AI trend provides graphics processing units (GPU), which are essential in developing AI, robotics, and autonomous vehicles, Abb Ltd, a manufacturer of electrification, automation, and robotics products in utilities, transport, and infrastructure, Keyence Corp, a developer of factory automation solutions and safety products in Japan, Fanuc Corp, a provider of factory automation products including lasers, robots, compact machining centers. The ETF is concentrated in three main sectors including information technology at 43.7%, industrials at 38.0%, and health care at 16.2%.


iShares Robotics and Artificial Intelligence Multisector ETF (IRBO)

The Robotics and Artificial Intelligence Multisector includes companies in developed and emerging markets that would benefit from long-term growth in robotics technologies and AI. IRBO currently has $329 million in AUM, a Management Expense Ratio (MER) of 0.47% and a twelve-month trailing yield of 0.63%. The portfolio is broadly diversified. Top five names include Meta Platforms Inc., Spotify Technology, Nvidia Corp, Meitu Inc., a Chinese internet company that offers photo and community apps, Alchip Technologies Ltd., which manufactures fabless application-specific integrated circuits (ASIC), mainly used in network, storage, and computing devices. IRBO is heavily concentrated in the tech sector with almost 57% of the portfolio being allocated to Information Technology sector.


ARK Autonomous Technology & Robotics ETF (ARKQ)

Lastly, the famous Cathie Wood ETFs - ARK Autonomous Technology & Robotics, ARKQ seeks long-term capital appreciation by investing in autonomous technology and robotics companies globally that are considered disruptive innovations. The ETF has had an annualized return of 12.4% since inception. ARKQ has amassed total assets of $948 million in management, and the ETF charges a MER fee of 0.75%. Top five securities are Tesla Inc., Kratos Defense, a government defence contractor that serves national security-related agencies, Uipath Inc., which offers a variety of robotic process automation solutions, Iridium Communications, which provides voice and data communication services to businesses and international governments, Trimble Inc., a solution provider for professionals and field mobile workers to transform their work processes.

AI is quickly becoming a hot topic in the investing world and investors are looking for the next ‘big thing’ in the space. While it is still early days, and the impacts in AI will probably be far greater than most can imagine at this stage, we think the above ETFs offer a way to gain exposure to these trends in a diversified and cost-effective manner.

Disclosure: Authors, directors, partners and/or officers of 5i Research have a financial or other interest in XIT and ZRE.