The world of AI-themed investments is an intriguing yet complex landscape, and it's time to dive into this fascinating topic.
The Rise of AI ETFs
As of April 2026, a whopping 47 exchange-traded funds (ETFs) have emerged, all with a focus on AI or artificial intelligence. These funds cover a broad spectrum, from large-language models to the infrastructure and hardware that power them. What's more, some ETFs even utilize AI to select securities, adding a layer of complexity.
The average age of these AI-themed ETFs is around three years, with the oldest, Global X Robotics & Artificial Intelligence ETF (BOTZ), dating back to 2016. Most of these funds have launched since 2022, indicating a recent surge in interest.
Despite their youth, these ETFs have attracted significant attention, collectively managing around $25 billion in net assets. This popularity is a testament to the growing fascination with AI and its potential impact on various industries.
Performance: A Mixed Bag
When it comes to performance, the AI ETF landscape is a tale of two extremes. On average, these funds have outperformed the S&P since 2016, but they haven't quite matched the Nasdaq 100 Index. This suggests that while AI-themed investments have potential, they may not be a guaranteed winner.
The variation in performance is quite striking. The difference in rolling one-year returns between the top and bottom quartiles of AI ETFs is a staggering 17 percentage points. This dispersion is significantly wider than what's typically seen in large-blend funds or even technology-focused funds.
Understanding the Disparities
What's driving these wide performance disparities? While these ETFs all fall under the AI banner, they aren't homogeneous. For instance, the largest AI-themed ETF by net assets, Global X Artificial Intelligence & Technology (AIQ), spreads its assets across over 80 stocks, avoiding concentration in a few top names. In contrast, the TrueShares Tech, AI, and Deep Learning ETF holds only around 20 stocks, heavily weighting its top picks.
This difference in approach has led to a significant gap in returns since August 2022, with the Global X ETF outperforming the TrueShares ETF by a substantial margin. The Global X ETF's success can be attributed to its holdings in stocks like Netflix, SK Hynix, and Samsung, while the TrueShares ETF struggled with stocks like Figma, Relay Therapeutics, and Prime Medicine.
Takeaways: A Word of Caution
Personally, I believe there's no compelling reason for investors to actively seek out AI-themed ETFs. If you're already invested in a diversified portfolio, you're likely already exposed to AI and other themes. Going further could be redundant and expose you to unnecessary risk.
For those eager to increase their exposure to AI, I'd ask: Are you sure it's not already priced in? By the time an emerging technology becomes mainstream, the market has likely already factored it into prices. It's a bit like trying to join a club that's already full—you might be too late to the party.
Thematic ETFs often suffer from poor timing, with investors buying high and selling low. This can lead to significant underperformance compared to the average dollar invested.
When investing in AI or any theme, it's crucial to consider the endgame. How will the story of AI adoption play out? When will it peak? These are questions even the experts can't answer with certainty.
Investing in a theme is not just about buying into a narrative; it's about understanding the future cash flows of the businesses involved. The timing and magnitude of these cash flows are unknown, and the market's willingness to pay for them is even more uncertain. It's a complex web of factors that can impact your investment.
If you're still considering AI-themed investments, it's essential to do your due diligence. Understand the overlap with other investments, consider your entry point, and have a clear exit strategy. Form a solid fundamental thesis and be aware of the differences between competing options.
In a landscape with so many AI-themed vehicles, you might need an LLM (Large Language Model) to keep track of it all!
Final Thoughts
The world of AI investing is an exciting frontier, but it's not without its challenges and risks. As an investor, it's crucial to approach these opportunities with a critical eye and a well-thought-out strategy. While AI may hold immense potential, it's essential to navigate the investment landscape with caution and a healthy dose of skepticism.
