Artificial intelligence (AI) exchange-traded funds (ETFs) seek to provide exposure to a fast-growing segment of the technology industry. AI aims to simulate human intelligence, leveraging powerful algorithms to make machines think and act like human beings. Though the automation of repetitive tasks and substitution of human labor by machines is nothing new, AI is accelerating this trend, resulting in giant leaps in productivity.
For investors who are optimistic about AI’s growth potential but unsure about which companies will perform best, an AI ETF is an option. AI ETFs hold a basket of stocks in companies that are engaged in some aspect of AI, enabling investors to share in the growth of AI companies’ profits without the challenge of trying to separate the winners from the losers.
Key Takeaways
- The artificial intelligence (AI) sector, as represented by the technology sector, outperformed the broader market over the past year.
- The AI exchange-traded funds (ETFs) with the best one-year trailing total returns are ROBT, ROBO, and KOMP.
- The top holdings of these ETFs are QinetiQ Group PLC, Azenta Inc., and Elbit Systems Ltd., respectively.
A special note: Some ETFs that use AI as a tool for picking stocks are also sometimes referred to as AI ETFs. But this story focuses on ETFs targeting companies that use AI for other industries, such as robotics, automation, healthcare, and automobiles.
There are six distinct AI ETFs that trade in the United States, excluding inverse and leveraged funds as well as those with less than $50 million in assets under management (AUM). The AI sector does not have its own benchmark, but its performance is best reflected in the index for the technology sector: the S&P 500 Information Technology sector index. The information technology (IT) index has slightly outperformed the broader market with a total return of -0.5% over the past 12 months, above the S&P 500’s total return of -2.6%, as of May 16, 2022. The best-performing AI ETF, based on performance over the past year, is the First Trust Nasdaq Artificial Intelligence & Robotics ETF (ROBT). We examine the three best AI ETFs below. All data in the lists below is as of May 16, 2022.
- Performance Over One-Year: -22.0%
- Expense Ratio: 0.65%
- Annual Dividend Yield: 0.15%
- Three-Month Average Daily Volume: 30,347
- Assets Under Management: $204.8 million
- Inception Date: Feb. 21, 2018
- Issuer: First Trust
ROBT seeks to track the Nasdaq CTA Artificial Intelligence and Robotics Index. The index is focused on companies engaged in AI, automation or robotics that are classified by the Consumer Technology Association. These include companies that: develop the building blocks for AI; design, and create AI software and systems; and provide services within the AI space. Companies must have a minimum market capitalization of $250 million and must also meet minimum average trading volumes and free float levels. U.S.-based stocks account for just under half of ROBT’s portfolio, followed by companies based in Japan, France, and the U.K. The top holdings of ROBT include QinetiQ Group PLC (QQ:LON), a British defense technology company; Topcon Corp. (7732:TKS), a Japan-based maker of optical equipment; and AeroVironment Inc. (AVAV), a maker of unmanned aerial vehicles.
- Performance Over One-Year: -22.2%
- Expense Ratio: 0.95%
- Annual Dividend Yield: 0.17%
- Three-Month Average Daily Volume: 95,310
- Assets Under Management: $1.3 billion
- Inception Date: Oct. 22, 2013
- Issuer: Exchange Traded Concepts
ROBO seeks to track the ROBO Global Robotics & Automation Index, which gauges the performance of companies engaged in robotics, automation, and AI. The ETF provides exposure to companies developing intelligent systems technology capable of sensing, processing, and acting, as well as to companies that apply that technology. The ETF follows a blended strategy of investing in a mix of value and growth stocks. It is diversified across a range of market capitalizations and developed markets, with its top 10 stocks accounting for only 17.2% of the portfolio. The fund’s top three holdings are Azenta Inc. (AZTA), an automation, vacuum, and instrumentation equipment maker; IPG Photonics Corp. (IPGP), a maker of fiber lasers and related equipment; and iRhythm Technologies Inc. (IRTC), a digital healthcare company.
- Performance Over One-Year: -30.1%
- Expense Ratio: 0.20%
- Annual Dividend Yield: 1.03%
- Three-Month Average Daily Volume: 160,816
- Assets Under Management: $1.6 billion
- Inception Date: Oct. 22, 2018
- Issuer: State Street
KOMP is a multi-cap, blended fund tracking the S&P Kensho New Economies Composite Index. The index is composed of companies that exploit major advancements in processing power, AI, automation, and robotics. The fund holds stocks domiciled in both developed and emerging markets. Application software, semiconductor, and aerospace & defense stocks make up the three largest portions of the portfolio. The top holdings of KOMP include Elbit Systems Ltd. (ESLT), an Israel-based defense technologies company; Teledyne Technologies Inc. (TDY), a maker of aerospace and defense electronics, digital imaging, and related solutions; and Vonage Holdings Corp. (VG), a cloud communications provider.
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