Quick reading
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XAIX offers low-cost AI exposure: its patent-based selection process focuses on companies actively developing AI technologies and keeps fees relatively low at 0.35%.
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CHAT takes an active approach: the fund uses proprietary research to identify companies most exposed to generative AI, resulting in a more concentrated portfolio with greater conviction.
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Position size still matters: AI remains a high-risk topic, so these ETFs work best as satellite holdings alongside a diversified core portfolio.
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Artificial intelligence and robotics continue to be among the most popular investment topics on the market. The problem is that many investors approach them in the wrong way. Instead of trying to identify the next startup that will shoot for the moon before everyone else, I generally prefer to use thematic ETFs.
Although thematic ETFs have their flaws, they still provide some diversification and reduce the risk that comes with going all-in on a single stock. That said, investors should remain selective. Many thematic ETFs charge high fees, launch near the peak of a hype cycle, and end up holding little more than an expensive basket of the same tech stocks you might already own through a broad market ETF.
Still, a handful of AI-focused ETFs have proven to be reasonably constructed and worthy of consideration. If I had $10,000 to allocate to the topic today, these are two funds I would consider: a low-cost passive option and an actively managed fund.
Xtrackers AI and Big Data ETF
The first ETF is the Xtrackers AI and Big Data ETF (XAIX). Unlike many thematic funds that simply select companies based on current AI-related revenue, XAIX attempts to identify companies that are actively developing AI technologies.
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The process begins with a universe of more than 1,700 companies. From there, the index uses a patent-based selection process to identify companies involved in areas such as deep learning, natural language processing, image and speech recognition, cloud infrastructure, cybersecurity and big data analytics.
The index then assigns an intensity score based on companies’ participation in these fields. The goal is to identify companies that demonstrate significant research and development activity rather than simply benefiting from the current enthusiasm for AI.