If you want to invest in AI, a thematic exchange-traded fund could come in handy. Here’s how to decide which one may be right for you.
From there, you'll have to be discerning about which funds you choose. Here's what experts recommend.The first thing you'll notice when shopping for a thematic ETF is that there are no shortage of funds with AI in the name. These generally fall into two camps: funds that invest in AI companies, and funds that use AI to pick stocks.
Some funds invest in large, established companies with an AI component to their business. The Global X Artificial Intelligence & Technology ETF, for instance, counts Tesla, Meta Platforms, Apple and Amazon among its top holdings. While these companies may have significant investments in AI, the technology is not what is primarily driving their business.
Plus, any fund should spell out its investment strategy clearly on its website."Look at the selection criteria — how are stocks chosen to be in this portfolio?" Lamont says.Thematic ETFs give you diversification when compared with picking a few individual stocks. If you think AI is on an upward trajectory, investing in a basket of 20 or 30 AI stocks can help you capture those returns while somewhat mitigating the risk that a single company could crash and derail your whole strategy.
What's more, thematic ETFs tend to charge higher expense ratios than broader-based strategies. That's why it's important to consider what you're paying for a basket of AI stocks. If the fund's holdings more or less overlap with what you could get from a technology stock fund or even a broad index fund, you may be overpaying for that exposure, says Lamont.
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