Investing in artificial intelligence (AI) is a popular strategy in the world of finance. It involves putting your money into funds or exchange-traded funds (ETFs) that assemble portfolios of companies involved in technology, communication services, and other industries connected to AI. This approach allows investors to diversify their investments in the AI sector.
Let’s take a closer look at AI and why it’s an attractive investment.
What is artificial intelligence?
AI is a rapidly growing field that involves the development of computer algorithms capable of mimicking human reasoning and decision-making. In simpler terms, AI aims to create programs that can think, make choices, and solve problems much like humans do.
For instance, you’ve probably noticed AI in everyday life, such as smart home devices that respond to voice commands or self-driving cars that can automatically stop for pedestrians.
These AI systems can learn and adapt, much like ChatGPT, a web-based AI that can provide answers to a wide range of questions, from basic to complex. The beauty of AI is that it has enormous room for growth and improvement, which makes it an exciting investment prospect.
Why should you consider investing in artificial intelligence?
Investing in AI is appealing for several reasons:
- Megatrend: AI is considered one of the most significant trends with immense potential. Its integration into daily life continues to expand.
- Wide applications: AI isn’t limited to one industry. It spans across various sectors, from voice assistants and smartphones to healthcare, gaming, and finance.
- Transformative potential: AI has the power to transform entire industries, from how products are made to how services are delivered. This transformation can lead to significant growth opportunities.
- Companies at the Forefront: Many prominent companies, such as Apple, Nvidia, Microsoft, Amazon, Google (Alphabet), and Capgemini, are heavily invested in AI and big data. Investing in these companies means gaining exposure to the AI sector.
Invest in artificial intelligence stocks
You can directly invest in companies that are leaders in AI technology. This means buying shares of these companies in the stock market.
Some of the companies that use AI and big data are:
- Google (Alphabet)
Invest in artificial intelligence funds
Alternatively, you can invest in AI-focused funds or ETFs. These funds pool money from multiple investors to create diversified portfolios of AI-related companies. It’s a way to spread your risk.
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Allianz Global Artificial Intelligence
This is the first investment product that allows European investors to access the world of artificial intelligence. It’s a groundbreaking fund in the field of AI.
Like many AI-focused investment funds, it falls into the Morningstar category of the technology sector. The primary goal of the Allianz Global Artificial Intelligence fund is to achieve long-term capital growth by investing in global equity markets. It focuses on businesses that are directly or indirectly connected to artificial intelligence and can benefit from it.
This fund employs an active management strategy, aiming to outperform its benchmark indices, which consist of 50% MSCI AC World (ACWI) Total Return Net and 50% of the MSCI World Information Technology Total Return Net. The experience and expertise of the fund managers play a vital role in its performance.
The fund was launched on May 27, 2017, and over the last three years, it has delivered an annualised return of 14.06%. In terms of risk, thematic investments in artificial intelligence are typically associated with the technology sector, leading to a higher volatility of 28.58%. Moreover, this risk level is above the average, as reported by Morningstar.
DWS Artificial Intelligence
The investment fund DWS Artificial Intelligence also represents a good option to invest in artificial intelligence. Its policy is based on investing in companies around the world but mainly focuses on the following sectors:
- Information technology
Although it is a global fund, the United States and emerging Asia areas have a considerable weight in the geographical distribution of the portfolio (with 67.22% and 13.92% respectively).
As for its profitability, the DWS Artificial Intelligence ND has been able to offer annualised returns of 8.87% in the last 3 years.
Otherwise, with a volatility of 21.63%, its risk is above the average.
Polar Capital Automation & Artificial Intelligence
Polar Capital, a European company with offices in London and Paris, offers one of the most popular options for investing in artificial intelligence: the Polar Capital Automation & Artificial Intelligence fund.
The fund’s objective is to generate long-term returns by investing in growth-oriented companies that develop or benefit from artificial intelligence. It maintains limited exposure to emerging markets, with a cap at 20% of its net asset value.
The majority of its assets are concentrated in stocks from the United States (49.54%) and Japan (15.63%).
The Polar Capital Automation & Artificial Intelligence Fund R Acc (EUR) has delivered a 3-year annualised return of 10.53%. The fund’s volatility is slightly lower than the previous two, standing at 20.73%.
Invest in artificial intelligence ETFs
Here are some options if you want to invest in artificial intelligence ETFs:
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Here are some of the best brokers if you want to invest in artificial intelligence:
- Interactive Brokers – read our Interactive Brokers review or visit the broker
- XTB – read our XTB review
- eToro – read our eToro review or find out more here
- DEGIRO – read our DEGIRO review
WisdomTree Artificial Intelligence (WTAI)
WisdomTree is a specialist in ETFs and is the seventh-largest provider in the world.
Among its offerings, the WisdomTree Artificial Intelligence (WTAI) ETF stands out. This ETF aims to track the performance of the NASDAQ CTA Artificial Intelligence index. To achieve this, the fund employs a passive management approach.
The two primary countries in which it invests are the United States and Taiwan, accounting for 57.83% and 13.63% of its portfolio, respectively.
Over the past three years, the ETF has delivered an impressive annualised return of 78.52%. However, in the last 12 months, it experienced a negative return of -11.49%, but it has recently shown signs of a positive trend.
This ETF exhibits a 1-year volatility of 30.30%.
Here’s a chart illustrating the ETF’s performance in recent years:
iShares Automation&Robotics ETF
In our discussion on investing in artificial intelligence, it’s essential to mention the iShares Automation & Robotics ETF, one of the most prominent ETFs in this theme available in Europe.
As its name suggests, this ETF provides investors with exposure to the robotics and automation industry, closely linked to artificial intelligence. Robotics and AI are closely related, making this ETF a relevant choice.
The ETF’s objective is to replicate the performance of the STOXX Global Automation & Robotics Index. It primarily invests in the United States and Japan, with allocations of 49.67% and 15.86%, respectively.
Over the past three years, the ETF has delivered an annualised return of 67.16%. Although its 1-year annualised return was 0.59%, it’s showing signs of an upward trend in recent months.
Its volatility stands at 26.39%.
Here’s a chart depicting the historical performance of this ETF:
L&G Artificial Intelligence
Another noteworthy ETF focused on artificial intelligence available in Europe is the L&G Artificial Intelligence.
This ETF aims to provide investors access to AI investments by constructing a portfolio heavily concentrated in the United States, with 75.22% of its assets allocated to this region. It primarily holds positions in technology sector companies, indicating a focus on firms involved in AI development.
Over the past three years, the L&G Artificial Intelligence ETF has delivered an annualised return of 58.85%. Despite a one-year return of -5.48%, recent months have shown signs of improved performance.
However, it’s important to note that this ETF has a relatively high volatility of 37.84%, surpassing the other ETFs analysed.
Below, you can see a graph illustrating the historical performance of this ETF:
Read more about investing
- Dividend investing
- Investing in commodities
- Money management strategies
- Best ETFs
- How to invest in the stock market
Investing in these AI-focused stocks and ETFs via one of the best brokers for beginners or the best commission-free brokers can be an attractive option for those seeking exposure to this dynamic and evolving field. However, as with any investment, it’s essential to assess your own financial goals and risk tolerance before making decisions.
What is the potential for AI in the long term?
AI has substantial long-term potential. It’s not just a trend; it’s a technology that’s becoming increasingly integrated into various industries. AI’s ability to transform sectors like healthcare, finance, and transportation suggests that it will likely continue to offer investment opportunities for years to come.
Are there ethical considerations when investing in AI?
Yes, ethical considerations are essential. AI can raise ethical concerns, such as privacy issues and biases in algorithms. Many investors choose to support companies that prioritise ethical AI practices and transparency. It’s important to align your investments with your values.
What are the risks associated with investing in AI?
While investing in AI offers potential for growth, it also carries risks. AI companies can be highly speculative, and the technology sector can be volatile. Additionally, regulatory changes and ethical concerns can impact AI investments. It’s important to diversify your portfolio and consider your risk tolerance.