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Are you looking for exposure to AI but unsure which stock to invest in? Consider owning one of the best AI ETFs instead.
This article will identify your five best options, analyze their risks, and offer alternative investment strategies if you find them underwhelming.
Best AI ETFs: Background
Artificial intelligence(AI) is the simulation of human processes by machines, which can vary from completing tasks on an assembly line to driving a vehicle on the freeway.
Whether it’s for automation or better data analysis, nearly every company uses AI in some way. You have exposure to AI if you own Ford stock, for example.
Breakthroughs in AI will significantly impact society — and your portfolio if you invest in the right names.
You’ll notice that the exchange-traded funds (ETF) in this article have sizable allocations to the FAAMG stocks. It’s not an accident that the best companies in the world are also leading the way in artificial intelligence.
However, we will explore more ‘pure-play’ AI options as well. Owning a basket of smaller AI companies could diversify your risk in an unpredictable industry.
Best AI ETFs
#1. ARK Autonomous Technology & Robotics ETF (ARKQ)
- Performance over 1-Year: -31.00%
- Expense Ratio: 0.75%
- Assets Under Management: $1.2 billion
According to the fund’s fact sheet, ARKQ invests in companies that focus on disruptive innovation in automation and manufacturing, transportation, energy, 3D printing, artificial intelligence, and materials.
‘Autonomous Vehicles’ and ‘Robotics’ companies make up 43% and 19% of ARKQ, respectively. However, ARKQ’s top holdings reveal its diversification amongst AI applications.
There’s no surprise to see a large allocation to Tesla (TSLA), ARK’s pride and joy, but some of the other names are worth discussing too.
Kratos (KTOS) uses AI to create better defense products and services, from autonomous weapons to cybersecurity and satellite communications.
ARKQ also has a growing allocation to UiPath (PATH), a software company that uses AI to automate white-collar work, like moving numbers around on a spreadsheet.
Many AI scientists expect AI to automate white-collar work before blue-collar — recognizing patterns in a database is easier for machines compared to computer vision and dexterity.
There are approximately 40-50 holdings in ARKQ at any given time, and they are subject to change daily. The top 10 holdings account for just over half the fund.
ARKQ Top Holdings:
- Tesla (TSLA) 10.79%
- Trimble (TRMB) 8.40%
- Kratos Defense and Security Solutions (KTOS) 7.93%
- UiPath (PATH) 6.06%
- Iridium Communications (IRDM) 5.93%
#2. Invesco QQQ Trust ETF (QQQ)
- Performance over 1-Year: -15.00%
- Expense Ratio: 0.20%
- Assets Under Management: $169 billion
The Invesco QQQ ETF tracks the tech-heavy Nasdaq-100 Index, which is one of three benchmark funds used to measure the market at a given time.
QQQ has a sizable allocation to Big Tech — the five FAAMG stocks make up 45% of the ETF.
These are the companies with the means and resources to advance AI technology.
For example, AlphaFold, an artificial intelligence program developed by Google’s DeepMind, just made a major breakthrough in predictive protein structure modeling.
AlphaFold can accurately predict 3D models of protein structure, which “has the potential to accelerate research in every field of biology.” Google has decided to share this database with the world for free.
Then there’s Meta and the metaverse. Mark Zuckerberg began merging the physical and digital worlds in 2004 and we believe he is far from finished.
Meta uses AI for its Virtual and Augmented reality technology — the two keys to the metaverse.
QQQ might not have the AI buzzwords like ‘Robotics’ or ‘Automation’ in its title, but it certainly provides exposure to the best AI stocks in the market.
QQQ Top Holdings:
- Apple (AAPL) 13.24%
- Microsoft (MSFT) 10.16%
- Alphabet (GOOG, GOOGL) 6.98%
- Amazon.com (AMZN) 6.30%
- Tesla (TSLA) 4.34%
#3. iShares Robotics and Artificial Intelligence Multisector ETF (IRBO)
- Performance over 1-Year: -33.00%
- Expense Ratio: 0.47%
- Assets Under Management: $258 million
iShares Robotics and Artificial Intelligence ETF (IRBO) tracks an index of “developed and emerging market companies that could benefit from the long-term growth and innovation in robotics technologies and artificial intelligence.
Unlike ARKQ and QQQ, IRBO is an equal-weighted index, meaning that each of the 106 holdings in the ETF have the same allocation.
Big Tech makes up just 5% of IRBO versus 42% of QQQ.
Consider owning IRBO instead of QQQ if you think ‘the field’ has better potential going forward than Meta, Apple, Amazon, Microsoft, and Google.
IRBO Top Holdings:
- VIA Technologies (2388:TAI) 1.31%
- Harmonic Drive Systems (6323: TKS) 1.25%
- HTC Corporation (2498: TAI) 1.22%
- Megaport (MP1: ASX) 1.19%
- JD.com (9618: HKG) 1.08%
Note that IRBO’s expense ratio is more than double that of QQQ.
#4. Global X Robotics & Artificial Intelligence ETF (BOTZ)
- Performance over 1-Year: -34.00%
- Expense Ratio: 0.68%
- Assets Under Management: $1.4 billion
The Global X Robotics & Artificial Intelligence ETF (BOTZ) invests in companies that will “benefit from increased adoption and utilization of robotics and artificial intelligence, including those involved with industrial robotics and automation, non-industrial robots, and autonomous vehicles.”
‘Industrials’ and ‘Information Technology’ command 41% and 35% of net assets, respectively.
BOTZ provides more international exposure to AI companies, specifically Japan, than the other ETFs mentioned in this article.
After the U.S. at 42%, Japanese companies account for 37% of BOTZ.
For reference, ARKQ invests 73% of its fund in the United States, IRBO does 55%, and QQQ does 97%.
The Japanese companies receiving high allocations specialize in industrial automation technology areas, such as robotics, vision systems, sensors, and other wireless systems.
BOTZ Top Holdings:
- Intuitive Surgical (ISRG) 8.99%
- Keyence Corp (6861:JP) 8.99%
- Nvidia (NVDA) 8.70%
- ABB Ltd-Reg (ABBN:SWX) 8.63%
- Fanuc Corp. (6954: TKS) 8.24%
There is not a single Big Tech company in BOTZ if you don’t count Nvidia.
#5. First Trust Nasdaq Artificial Intelligence & Robotics ETF (ROBT)
- Performance over 1-Year: -25.00%
- Expense Ratio: 0.65%
- Assets Under Management: $195 million
ROBT tracks an index called the Nasdaq CTA Artificial Intelligence and Robotics Index, which includes companies engaged in the AI and robotics segments of the technology, industrial, and other economic sectors.
Several of ROBT’s top holdings are involved in the business intelligence space, such as UiPath.
The holdings in this fund cover a lot of ground in terms of sector diversification, and the companies tend to be smaller.
Generally speaking, you can expect relatively more volatility when investing in small-cap tech stocks, which is exactly what you’re doing by investing in ROBT.
ROBT Top Holdings:
- Cadence Design Systems (CDNS) 2.33%
- Elbit Systems (ESLT) 2.27%
- Synopsys (SNPS) 2.24%
- UiPath (PATH) 2.19%
- OBIC Co. (4684: TKS) 2.14%
Like BOTZ, this fund steers clear of Big Tech.
Alternatives to the Best AI ETFs
‘Alternatives to AI ETFs’ depends on why you’re investing in this technology in the first place.
We’ve emphasized Big Tech’s role in the AI industry — if you already own them individually or via the Qs, you might have enough exposure to AI.
There are only a handful of ‘pure-play’ AI companies. It’s more about how companies are applying or adopting the technology than any specific company developing it.
Another alternative would be to invest in pick-and-shovel AI companies, like Nvidia (NVDA), Applied Materials (AMAT), or TSMC (TSMC).
Risks to Investing in AI ETFs
Most of the companies in these funds are high-growth tech stocks with lofty valuations.
These names tend to get trimmed during periods of market uncertainty and turmoil.
High expense ratios are another ’risk’ to consider. However, unlike potential market corrections, this risk is known from the start.
But you might be paying unnecessarily high fees for more exposure to Google in one of these thematic ETFs.
Frequently Asked Questions
What is the best AI ETF?
QQQ invests heavily in the five FAAMG stocks, which are the most capable AI stocks on the market. This is why we believe that QQQ might be the best AI ETF when you consider things like allocation and fees.
What are the best China ETFs?
The best China ETFs are ProShares Ultra FTSE China 50 (XPP), Global X China Materials ETF (CHIM), and KraneShares CSI China Internet ETF (KWEB).
Is ARKG a good ETF?
ARKG is a good ETF for investors looking for exposure to the biotech and genomic space. The majority of companies in ARKG are small and not profitable. Investors should have a long-term time horizon when investing in ARKG.
Bottom Line: Best AI ETFs
The best artificial intelligence ETF depends on your current portfolio construction, investing goals, and time horizon.
It’s also worth considering the type of AI exposure you’re seeking, which can significantly vary between these funds.
Keep Reading:
This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we selected the best Artificial Intelligence ETFs.
This article was updated on July 31st, 2022 to reflect changes in the performance and characteristics of each fund.
