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Best AI ETFs for Investors: Balancing Performance, Fees, and Risk

By: MarketBeat

September 09, 2024 at 07:20 AM EDT

For all its anticipated potential, the AI space is still nascent, and investors looking to capitalize on the hype may need to get creative. Some of the leading AI firms, like OpenAI, are not yet publicly traded, while the industry overall is shifting at such a rapid pace that bets on many individual companies may carry higher risk levels than some investors are comfortable with. Fortunately, exchange-traded funds (ETFs) exist to provide broader exposure to the AI and emerging technology markets in a way that simplifies the investment process while also mitigating risk.

Before investing in AI ETFs, investors should look to key performance measures like trading volume and assets under management (AUM), which give a sense of how liquid the shares of these funds will be. It's also important to understand the underlying indices and approaches to portfolio construction, as many of the leading AI ETFs have portfolios of significantly different sizes and makeups. Additionally, expense ratios—which tend to be higher for funds with a targeted theme like AI—will have an impact on an investor's returns and can vary widely as well.

iShares Exponential Technologies ETF: Broad Exposure and Solid Asset Base

The iShares Exponential Technologies ETF (NASDAQ: XT) provides exposure to a basket of just under 200 global equities that have significant exposure to exponential technology and the potential to fuel technological advances across sectors. Although it is not specifically focused on AI, this technology is nonetheless a prominent recurring theme across many of the names in XT's portfolio.

XT offers investors one of the broadest geographical bases of any ETF targeting AI companies, as it is one of the few to include equities from both developed and emerging markets. With a focus on large-cap firms, XT aims to ensure that its holdings are well-established companies that are capable of making a technological impact.

This fund has a solid AUM base of $3.3 billion, among the largest of any fund with a similar theme, and moderate trading volume. It also has an expense ratio of 0.46%, which is competitive relative to many themed ETF rivals. Where it does fall somewhat short is in performance in the past year, as it has returned only 4.5% over that time.

Global X Artificial Intelligence & Technology ETF

The Global X Artificial Intelligence & Technology ETF (NASDAQ: AIQ) targets both companies that provide hardware related to AI applications and firms that stand to benefit from continuing to integrate AI into their operations in the coming months and years. It focuses on a relatively small group of around 85 securities with no single name occupy more than 4% of invested assets.

AIQ centers on large-cap growth stocks in developed markets, meaning it doesn't have quite as broad a range of holdings as XT above. With an expense ratio of 0.68%, it is among the more expensive AI ETFs currently on offer. However, it has a strong AUM base of over $2 billion and the highest 1-month average trading volume of the three funds in this list. This ETF also stands out for its performance in the last year, having returned over 19% during that period.

SPDR S&P Kensho New Economies Composite ETF

Like XT above, the SPDR S&P Kensho New Economies Composite ETF (NYSEARCA: KOMP) also includes businesses outside of the AI space, such as those involved in robotics and automation. However, its competitive fees and broad portfolio make it a good choice for investors seeking exposure to emergent technologies.

KOMP has an expense ratio of just 0.20%, making it less expensive than most other AI-focused funds. It also has a portfolio of well over 400 names and excellent asset distribution across those equities, helping to minimize the risk of individual companies. Further, the portfolio includes a mixture of all market capitalizations, so KOMP can provide exposure to up-and-coming firms that may carry a high-risk level as individual investments.

Different Exposure, Different Goals

These three AI ETFs offer different approaches to this emerging and popular industry, from relatively narrow and focused portfolios of AI-specific companies in developed markets to much broader portfolios including multiple market capitalizations or regions. As such, investors particularly interested in gaining exposure to AI may find that targeting more than one AI ETF gives the broadest possible view of the industry.

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Best AI ETFs for Investors: Balancing Performance, Fees, and Risk

iShares Exponential Technologies ETF: Broad Exposure and Solid Asset Base

Global X Artificial Intelligence & Technology ETF

SPDR S&P Kensho New Economies Composite ETF

Different Exposure, Different Goals

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