Are AI ETFs Right for Your Client’s Portfolio?
Over the past few decades, artificial intelligence (AI) has moved from science fiction to fact as consumers grow accustomed to everything from smart appliances to driverless cars. Wall Street, not surprisingly, is taking notice.
According to market researcher , spending on AI and related technologies are expected to hit $12.5 billion in 2017. By 2020, that figure is expected to reach $46 billion, achieving an eye-popping compound annual growth rate topping 54 percent. It’s hard to think of a company that isn’t touched by the technology whether it’s Amazon’s (AMZN) Alexa digital assistant, Comcast’s (CMCSA) voice-enabled XI remote or the smart ATMs at Wells Fargo (WFC) and other banks.
Clients can get broad exposure to AI through large technology funds such as the PowerShares QQQ ETF (QQQ), Technology Select Sector SPDR Fund (XLK) or the Vanguard Technology ETF (VGT) or through specialized ETFs including Robo-Stox Global Robotics and Automation Index ETF (ROBO), Global X Robotics & Artificial Intelligence Thematic ETF (BOTZ) and The Industrial Innovation ETF (ARKQ). There is no wrong way to approach these investments because it depends on a client’s tolerance for risk. For instance, QQQ’s top holdings include a who’s who of the tech world including Apple (AAPL), Microsoft (MSFT) and Google parent Alphabet (GOOG). The niche funds focus on smaller, less well-known players such as Intuitive Surgical (ISRG), a maker of robotic surgical systems, and IRobot (IRBT), which makes military and space exploration robots, that may be more volatile.
All the funds discussed above are up more than 20 percent this year, more than double the broader S&P 500, so it might be a good to wait for a pullback before adding any of them to clients’ portfolios.