Dave Mazza, chief strategy officer for Roundhill, and Rebecca Sin, an ETF analyst for Bloomberg Intelligence, discuss the hype versus reality of AI in the ETF industry, exploring approaches and challenges faced by AI-powered funds. They also explore the impact of AI on ETFs, identifying companies with unique AI exposure, discussing the potential of AI in interviews and its influence in the tech sector, and sharing their favorite ETF tickers.
AI-powered ETFs face challenges like high fees, turnover, and the need to limit costs to improve performance.
Investors interested in AI-themed ETFs should carefully consider the fund's methodology, holdings, and expenses to ensure they align with the desired exposure to AI.
Deep dives
AI-Powered ETFs: Utilizing AI for Investment
AI-powered ETFs utilize artificial intelligence to inform investment decisions, leveraging algorithms and data analysis to identify opportunities for alpha generation. However, these ETFs face challenges, including high fees, turnover, and the need to limit costs to improve performance. Some AI-powered ETFs, like AIQ, have lagged behind the broader market due to excessive trading. As the AI space evolves, finding the right fund managers becomes crucial, as their decisions and tweaks to the model impact the fund's performance. The growth of AI-powered ETFs is expected to continue, with more than 150 ETFs focused on AI projected to exist by 2030.
AI-Themed ETFs: Capitalizing on the AI Trend
AI-themed ETFs take a different approach, investing in companies related to AI technology or affected by its growth. These companies may range from large cap players like NVIDIA and Microsoft to smaller players involved in generative AI. Chat GPT, a generative AI model that gained 100 million users in just two months, demonstrates the growing interest and hype surrounding AI. ETFs like CHAT aim to provide exposure to companies leading the way in generative AI and related technologies, offering a concentrated portfolio of around 25 to 30 stocks with global exposure.
Evaluating AI ETFs: Challenges and Considerations
Investors interested in AI-themed ETFs should carefully consider the fund's methodology and holdings to ensure they align with the desired exposure to AI. Evaluating factors like the ETF's transcript scores and sector scores can provide insights into the fund's focus and authenticity. High-profile stocks like NVIDIA and Microsoft, which have significant exposure to AI, may receive higher weightings in AI-themed ETFs. However, investors should also assess the expenses and turnover rates of these ETFs, as high fees and excessive trading can impact long-term performance. As AI continues to evolve, finding ETFs that truly capture the potential of AI and adapt to changing technology trends will be key.
Unless you’ve been living under a rock, you’ve likely heard about how Artificial Intelligence is going to be a big deal. The exchange-traded fund industry is as excited as any other, and has launched a slew of funds dedicated to either using AI or investing in AI companies. But will this shiny new object be the monumental shift some predict it will be?
On this episode, we chat with Dave Mazza, chief strategy officer for Roundhill, and Rebecca Sin, an ETF analyst for Bloomberg Intelligence who covers Asia. We discuss how much of this trend is hype versus reality, and what investors should know.