If you are one of the investors that feels like you are hearing more and more about the artificial intelligence (AI) investment theme, you are probably right.
AI is a prime example of a theme of tomorrow with accessible, practical investment opportunities that are reachable today. Exchange traded funds (ETFs) are bolstering the accessibility of AI-related investments. By some estimates, there are more than 40 US-listed ETFs with some AI exposure. A smaller, but growing number are explicitly dedicated to AI and related themes.
The Global X Future Analytics Tech ETF (AIQ) is part of that group. AIQ, which turns a year old in May, tracks the Indxx Artificial Intelligence & Big Data Index. Like many AI ETFs, AIQ lacks the lengthy track record many advisors and investors crave when evaluating funds, but growth expectations for AI indicate waiting for these funds to age could mean missed opportunities.
“Worldwide spending on artificial intelligence (AI) systems is forecast to reach $35.8 billion in 2019, an increase of 44.0% over the amount spent in 2018,” according to International Data Corp.'s (IDC) recently published Worldwide Semiannual Artificial Intelligence Systems Spending Guide.
A Growth Play
Many thematic ETFs are chock full of stocks with the growth designation. Some of AIQ's 80 components can be considered growth stocks, but the AI fund's components have an average market value of $80.78 billion, indicating the fund is not a bet on small-cap growth, a rewarding, but often volatile market segment.
In fact, some AIQ's holdings, including top 10 components Intel Corp. (INTC), Microsoft Corp. (MSFT) and QUALCOMM Inc. (QCOM), reside in some value indexes. AIQ's price-to-book and price-to-earnings ratios of 4.47 and 21.32 are not excessive relative to the comparable metrics of 6.00 and 18.71 on the Nasdaq-100 Index.
While AIQ holds some growth stocks, the fund's growth feel is heavily derived from broader AI industry trends. The aforementioned IDC report notes “pending on AI systems will more than double to $79.2 billion in 2022 with a compound annual growth rate (CAGR) of 38.0% over the 2018-2022 forecast period.”
Fostering that growth are AI's myriad applications across multiple industries, including financial services, healthcare and retail.
“Global spending on AI systems will be led by the retail industry where companies will invest $5.9 billion this year on solutions such as automated customer service agents and expert shopping advisors & product recommendations,” according to IDC. “Banking will be the second largest industry with $5.6 billion going toward AI-enabled solutions including automated threat intelligence & prevention systems and fraud analysis & investigation systems.”
Thematic ETFs have the potential to outperform traditional sector funds. Consistently delivering on that potential is what advisors and investors are looking for. This year, AIQ is up 20.92%, topping the Technology Select Sector Index by about 270 basis points.
Some data points indicate investors are starting to nibble at AIQ. This month, the AI ETF has seen inflows of $1.55 million, bringing its total assets under management to $39 million. Those flows accompany a March gain of 3.39% for AIQ.