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 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.
- The AI sector, as represented by the tech sector, slightly underperformed the broader market over the past year.
- The ETFs with the best one-year trailing total return are LOUP, ARKQ, and ROBO.
- The top holdings of these ETFs are Harmonic Drive Systems Inc., Tesla Inc., and Intuitive Surgical Inc., 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 U.S., 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 underperformed the broader market with a total return of 30.5% over the past 12 months, just below the S&P 500's total return of 31.4%, as of Aug. 27, 2021. The best-performing AI ETF, based on performance over the past year, is the Innovator Loup Frontier Tech ETF (LOUP). We examine the three best AI ETFs below. All data in the lists below is as of Aug. 27, 2021.
- Performance Over One-Year: 51.7%
- Expense Ratio: 0.70%
- Annual Dividend Yield: N/A
- 3-Month Average Daily Volume: 14,789
- Assets Under Management: $76.9 million
- Inception Date: July 25, 2018
- Issuer: Innovator
LOUP is a multi-cap ETF that tracks the Loup Frontier Tech Index, which holds a basket of companies representing AI technology as well as robotics, fintech, autonomous vehicle technology, virtual reality, and similar technologies. LOUP holds approximately 30 stocks, with the majority of them based in the U.S. The fund follows a blended strategy, investing in a mix of growth and value stocks. Its top three holdings include Harmonic Drive Systems Inc. (6324:JAS), a Japan-based manufacturer of mechatronics products and speed reducers; Snap Inc. (SNAP), a camera and social media company; and Class A sponsored ADRs of Baidu Inc. (BIDU), a China-based company offering Internet search engine and other online services.
- Performance Over One-Year: 45.1%
- Expense Ratio: 0.75%
- Annual Dividend Yield: 0.80%
- 3-Month Average Daily Volume: 356,112
- Assets Under Management: $2.7 billion
- Inception Date: Sept. 30, 2014
- Issuer: ARK
ARKQ holds a basket of multi-cap equities focused on autonomous vehicles, robotics and automation, 3D printing, energy storage, and space exploration. Until November of 2019, the fund was called the ARK Industrial Innovation ETF. ARKQ is an actively managed ETF that employs a growth strategy and is geographically diversified across developed markets throughout the world. The fund's top three holdings include Tesla Inc. (TSLA), an electric vehicle and clean energy company; Trimble Inc. (TRMB), a provider of advanced location-based software solutions; and Kratos Defense & Security Solutions Inc. (KTOS), a defense contractor and security systems integrator for the U.S. federal government as well as state and local agencies.
- Performance Over One-Year: 40.5%
- Expense Ratio: 0.95%
- Annual Dividend Yield: 0.18%
- 3-Month Average Daily Volume: 81,840
- Assets Under Management: $1.8 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, and 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. The fund's top three holdings include Intuitive Surgical Inc. (ISRG), a provider of robotics-assisted minimally invasive surgery technology; ServiceNow Inc. (NOW), a software company that provides a cloud computing platform for digital workflows; and Vocera Communications Inc. (VCRA), a provider of instant voice communication solutions.
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