The WisdomTree Artificial Intelligence UCITS ETF has been conceived in conjunction with both Nasdaq and the Consumer technology Association (CTA) and provides exposure to what the manager calls the exponential megatrend of AI technology. It will be listed on the London Stock Exchange and comes with a TER of 0.40%. To capture the full economic value of AI, the fund has been designed to categorise companies by whether they are an engager, an enabler or an enhancer.
When investors think of what this can bring to a portfolio, they should be thinking over a long-time horizon and about how advances like autonomously driven cars, a digital workforce, mass facial recognition and other applications of intelligent machines could change the world.
I have reservations about thematic ETFs. I think what is interesting is how thematic indexes like this are created and how some companies, best known for other things, creep into that index. Companies like Continental Tyres, Tesla, Blackberry and old favourites like Microsoft and Baidu. Ultimately it is these companies that will drive the performance of the ETF and investors must satisfy themselves that the ETF contains what they want. The index is created by NASDAQ and the Consumer Technology Association (CTA). The CTA is better known as the organiser of the Consumer Electronics Show in Las Vegas every year rather than their investment expertise. Interestingly the CTA publish five technology trends to follow every year; they do not seem to have selected AI as a trend worth following. Maybe WisdomTree’s “exponential technology megatrend” will creep into next year’s five technology trends to follow. I think we are all clear that AI, however defined, will be an important technology tool in the future, but I wonder whether this index is capturing that trend. The Chinese government and its proxies realised AI’s importance years ago and have been devoting enormous resources to developing their capability, but yet I can only see one Chinese company in this index. One of the most overused words connected with AI is the term ‘disruptive’ which leads one to wonder why there are so many old favourites in the index. Surely these are the companies at risk of being disrupted. Now show me an ETF that uses AI to pick stocks, explain to me in layman’s terms how it works, and then I might be interested.
There are two types of artificial intelligence (AI) ETFs: funds that use AI for stock-picking like AIEQ, which is powered by IBM’s Watson, and others that seek to benefit from companies selling AI-related products and services. WisdomTree’s Artificial Intelligence UCITS ETF (WTAI) belongs to the latter category and provides exposure to companies operating in the AI space. The portfolio mainly comprises semiconductor and application software stocks from the US (60%) and Taiwan (11%), which makes this a specialty play in the technology sector. WTAI’s TER of 0.40% is in line with comparable ETFs such as Amundi’s GOAI. Investors might note that the ETF features hardly any Chinese companies, which are investing heavily into AI, and that semiconductor stocks have been in the centre of worrisome US-China trade discussions.
Several thematic ETFs have been launched in the past few months in the AI, tech and robotics space, with WisdomTree adding to the product mix. NASDAQ sits behind the benchmark, and while it has systematic weights (50% ‘engagers’, 40% ‘enablers’ and 10% ‘enhancers’), there is a certain amount of subjectivity to determine which company fits into which bucket, and at what weight. Long-term investors effectively rely on the index panel to identify the future winners in this space. Some investors might be surprised – for example – to see that Blackberry at a 4.3% weight makes it into the top 10. Nevertheless, this ETF will offer a different return profile to a market cap tech index and could be an attractive diversifier for more adventurous investors.
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