Some of the most popular new investment themes focus on cutting-edge technologies such as artificial intelligence (AI), blockchain, and robotics. Below, we look at the exchange-traded funds (ETFs) that target these themes.
- Investors who want to narrowly focus on promising sectors such as AI, blockchain, or robotics—but don't want to pick individual stocks—might consider an ETF that targets these technologies.
- One caveat, however, is that AI, blockchain, and robotics ETFs are likely to charge higher fees compared with ETFs that invest more broadly.
- Because these technologies constantly evolve, investors need to regularly review what's inside the ETFs they're holding.
Thematic ETFs Present Long-Term Opportunities
According to Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA Research, investors are turning to cutting-edge technologies such as AI, blockchain, and robotics for the promise of higher returns over the long run. But he added the most popular choices all "tend to charge a premium price relative to market-cap-weighted ETFs."
- Global X Robotics & Artificial Intelligence ETF (BOTZ)
- ROBO Global Robotics & Automation Index ETF (ROBO)
- Siren NASDAQ NexGen Economy ETF (BLCN)
- Capital Link NextGen Protocol ETF (KOIN)
Nonetheless, Rosenbluth says, "as more asset managers compete for investor interest, fees have and will continue to move lower."
Why might these ETFs be drawing so much interest from investors, despite their narrow focus and more expensive fees compared with traditional ETFs? For starters, it's important not to discount the effect of novelty. ETFs that focus on AI, blockchain, and robotics are relatively new.
Many investors are simply optimistic about these new industries and want to explore for themselves. Blockchain has been hailed as a breakthrough technology as important as the internet itself. Robotics offer the potential for greater efficiencies that come with increased automation, while artificial intelligence occupies a similar space.
While none of these technologies have yet to truly transform the business world (or the world at large), many believe they have strong potential to do so.
Long-Term Investors Should Not Be Complacent
It is crucial for long-term investors in ETFs, whether traditional or thematic, to remain involved in the investment process. "Investors should regularly review what's inside the ETFs they're holding to understand how the securities fit going forward," Rosenbluth says. "Investors should also periodically rebalance their assets as positions do not move up or down in tandem."
In other words, just because an ETF may be passively managed, that does not necessarily mean an investor can treat their individual investment passively.
This kind of advice applies to index ETFs just as much as it does ETFs representing new areas such as AI, blockchain, and robotics. Indeed, because these spaces constantly evolve, one might argue that investors in cutting-edge technologies need to remain even more vigilant. There remains great opportunities for investment success, but it requires constant care and maintenance.