The Future of AI Investing | ETF Trends

While bonds have been the hottest ETF asset class in 2023, for the broader investment community, this is the year of AI investing. Just as many people no longer spell out “exchange traded funds” for ETFs, AI has become shorthand for artificial intelligence. At VettaFi, we will be talking about AI investing a lot in August, including at a virtual event. 

AI has been the buzzword of the year, and mentions during second-quarter earnings more than quadrupled this year, as of late July. Executives have dropped the term 390 times this earnings season compared to 92 a year ago, according to Bloomberg. AI-related companies helped to drive the SPDR S&P 500 ETF (SPY) and the more growth-oriented Invesco QQQ (QQQ) in the first seven months the year. 

See more: Dave Nadig with ROBO Global on AI 

On the thematic ETF side, VettaFi is seeing strong interest as well. Based on over one million user engagements over the past five months, our behavioral intelligence tool, VettaFi Explorer, is signaling persistent demand for AI and robotics ETFs.

AI Remains a Strong ETF Theme

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We have seen index ETFs like the Global X Artificial Intelligence & Technology ETF (AIQ) and the iShares Robotics and Artificial Intelligence Multisector ETF (IRBO) gather strong inflows this year. Meanwhile, broader disruptive technology and innovative active ETFs like the Goldman Sachs Innovate Equity ETF (GINN), the Harbor Disruptive Innovation ETF (INNO), and the Neuberger Berman Disrupters ETF (NBDS) benefit from stocks connected to these mega-trends. 

Separately, VettaFi hosted a webcast with QRAFT ETFs in July. Advisors were asked, “Do you think AI can enhance the efficiency of financial activities?” Seventy-three percent of advisor respondents chose “strongly agree” or “agree.” QRAFT and a handful of other asset managers are using AI exclusively to make allocation decisions.  

To be clear, these ETFs do not necessarily own stocks of companies tied to AI. In some cases, they own commodity futures chosen based on AI. Using AI, these ETFs can potentially identify data patterns at a greater scope, scale, and speed than humans. Additionally, they can’t fall in love with their decisions. 

For example, the QRAFT AI-Enhanced U.S. Large Cap Momentum ETF (AMOM) recently owned technology stocks like Broadcom and NVIDIA. Those companies might be found in an AI investments ETF. However, it also owned Home Depot and Walmart, which likely would not. AMOM actively chooses stocks that exhibit high price momentum using AI technology. 

Meanwhile, the Teucrium AiLA Long-Short Agriculture Strategy ETF (OAIA) uses AI to determine how and whether to go long or short commodities like coffee, corn, soybeans, sugar, and wheat. This is in place of a human trader making those decisions. 

Learning Opportunities

These AI-driven ETFs are small. However, as more advisors get comfortable using AI to support financial activities, we think there’s tremendous potential. On the heels of a highly successful VettaFi Fixed Income Symposium, we are hosting another virtual event at the end of August. The VettaFi AI Symposium will cover the above topics and more. Sign up today.  

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