Artificial intelligence (AI) investing has shown significant upside potential, as evidenced by Nvidia’s performance over the past year. However, choosing the right individual stocks in this rapidly evolving tech landscape can be challenging. One way for investors to mitigate this risk is by opting for AI exchange-traded funds, which offer exposure to a diversified portfolio of companies positioned to benefit from AI adoption.
There are three main categories of companies that AI ETFs target: enablers, engagers, and enhancers. Enablers provide core components for AI development, such as semiconductor or cloud computing infrastructure. Engagers incorporate AI technology into their products, while enhancers contribute to the AI ecosystem without directly selling AI solutions. AI funds typically include a mix of these types of companies, as well as robotics companies, as the two disciplines are closely related.
When choosing the best AI ETFs for investment, factors such as expense ratios, net asset values, and portfolio diversity should be considered. The selected ETFs should have an expense ratio of no more than 0.65%, net assets greater than $250 million, and at least 70 different stocks in the portfolio. These criteria ensure efficient cost management and a well-diversified investment strategy.
Seven top AI ETFs have been identified based on these criteria, offering investors opportunities for long-term growth. These ETFs include Vanguard Information Technology ETF, Fidelity MSCI Information Technology Index ETF, SPDR S&P Kensho New Economies Composite ETF, iShares Robotics and AI Multisector ETF, First Trust Nasdaq AI and Robotics ETF, Defiance Quantum ETF, and Invesco AI and Next Gen Software ETF. Each of these ETFs has unique investment strategies and key advantages that cater to different investor preferences.
Investors can choose ETFs based on their desired exposure to AI and related technologies, as well as their risk tolerance and investment goals. For example, VGT is known for its low expense ratio and high-quality holdings, while FTEC tracks large-cap tech stocks. KOMP offers exposure to transformative innovation in robotics, automation, and AI, while IRBO provides a balanced mix of companies enabling or using robotics and AI technologies.
Overall, AI ETFs provide a convenient and cost-effective way for investors to gain exposure to the growing AI market. With the potential for long-term growth and diversification benefits, these ETFs present opportunities for investors to capitalize on the transformative impact of AI on businesses and society. By selecting the right AI ETFs based on their investment objectives, investors can position themselves for success in this dynamic and rapidly evolving market.
