Artificial Intelligence (AI) has emerged as a dominant force in thematic ETFs, revolutionizing the investment landscape and capturing the attention of investors worldwide. In February, European-domiciled thematic ETFs experienced record outflows of $533 million, marking a continuation of the sector’s decline since 2023. However, amid this gloomy performance, the allure of AI has shone bright, with AI-focused ETFs emerging as the top performers in the first two months of 2024.
Contrary to the overall trend of outflows, AI ETFs have attracted a net inflow of $2.1 billion since the beginning of 2023. In fact, the top three best-selling thematic ETFs in Europe over the past 14 months have all been AI-related. These include the Xtrackers Artificial Intelligence & Big Data Ucits ETF (XAIX), the WisdomTree Artificial Intelligence Ucits ETF (WTAI), and the L&G Artificial Intelligence Ucits ETF (AIAI).
According to Kenneth Lamont, senior fund analyst for passive strategies at Morningstar, “The big story is AI. It has been the theme de jour, taking over from the energy transition.” Lamont believes that AI has the potential to change the world, and betting against its success would be unwise.
This AI trend is not limited to Europe. In the US, AI ETFs have emerged as beacons of success, despite the overall decline in thematic ETF assets. The Global X Robotics & Artificial Intelligence ETF (BOTZ), the largest AI-focused fund in the US, has seen significant inflows since the start of 2023. Similarly, the Global X Artificial Intelligence & Technology ETF (AIQ) and the iShares Robotics and Artificial Intelligence Multisector ETF (IRBO) have demonstrated consistent net inflows in recent months.
As Todd Rosenbluth, head of research at VettaFi, highlights, “Artificial intelligence was a key investment theme in 2023 and remains in focus in the first quarter of 2024.” The media coverage surrounding AI has propelled investors towards this attractive theme, causing a shift away from once popular themes like clean energy.
Thematic investing has not always been highly regarded by Morningstar. Previous research indicated that investors missed out on significant returns due to their tendency to buy high and sell low. However, Lamont argues that the last couple of years have made a strong case for thematic investing, particularly in the context of AI. He argues that AI is driving global markets and has become the pivotal theme of our time.
The success of AI ETFs is further supported by their performance. In Europe, AI-focused ETFs have outperformed other thematic funds, with a median return of 35.8% over the past year, nearly three times higher than the median return of 13.9% for thematic ETFs. In the US, the largest AI-focused ETFs have achieved a mean return of 28.1% within the same time period.
FAQs
What is a thematic ETF?
A thematic ETF is an exchange-traded fund that invests in a specific theme or sector, allowing investors to gain exposure to a particular area of interest, such as artificial intelligence, clean energy, or robotics.
Why are AI thematic ETFs gaining popularity?
AI thematic ETFs are gaining popularity due to the potential transformative impact of AI on various industries. Investors recognize the significance of AI in shaping the future, driving innovation, and creating new opportunities for growth.
What are the benefits of investing in AI thematic ETFs?
Investing in AI thematic ETFs provides diversification within the AI sector, allowing investors to gain exposure to multiple companies involved in AI development and implementation. It also offers the potential for significant returns, as AI continues to revolutionize industries and drive technological advancements.
Are thematic investments suitable for long-term strategies?
Thematic investments are often viewed as short-to-medium-term strategies as investors look to rotate between different themes. However, the long-term potential of certain themes, such as AI, may warrant a longer investment horizon.
Sources: etfbook.com, vettafi.com
FAQs:
1. What is a thematic ETF?
A thematic ETF is an exchange-traded fund that invests in a specific theme or sector, allowing investors to gain exposure to a particular area of interest, such as artificial intelligence, clean energy, or robotics.
2. Why are AI thematic ETFs gaining popularity?
AI thematic ETFs are gaining popularity due to the potential transformative impact of AI on various industries. Investors recognize the significance of AI in shaping the future, driving innovation, and creating new opportunities for growth.
3. What are the benefits of investing in AI thematic ETFs?
Investing in AI thematic ETFs provides diversification within the AI sector, allowing investors to gain exposure to multiple companies involved in AI development and implementation. It also offers the potential for significant returns, as AI continues to revolutionize industries and drive technological advancements.
4. Are thematic investments suitable for long-term strategies?
Thematic investments are often viewed as short-to-medium-term strategies as investors look to rotate between different themes. However, the long-term potential of certain themes, such as AI, may warrant a longer investment horizon.
Definitions:
1. AI: Artificial Intelligence refers to the simulation of human intelligence in machines that are programmed to think and learn like humans. It involves tasks such as speech recognition, decision-making, problem-solving, and more.
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