AI ETFs Have Now Become a $65 Billion Market

Oscar-winning actress Reese Witherspoon may have irked the internet when she said the artificial intelligence revolution has begun, but ETF investors are certainly hoping she’s right. 

Overall assets for thematic AI funds have skyrocketed in the past year, according to a recent report from J.P. Morgan Asset Management. While assets were at $10.3 billion a year ago, they hit $64.9 billion as of the end of June, according to data shared with ETF Upside. Artificial intelligence is now the top theme by AUM, followed by infrastructure, defense, cybersecurity and natural resources. The funds are a convenient vehicle for institutional money to trade broad exposure quickly with plenty of liquidity, said Erik Kratz, chief investment officer at Arena Private Wealth. But they also let passive-leaning investors feel active by targeting a theme without the concentration risk of a single stock. 

“We view these thematic ETFs as sentiment-driven vehicles rather than an ETF that will be found in future retirees’ portfolios in 30 years,” Kratz said. “Real wealth is still built by owning great businesses directly within a secular theme like AI, and holding them through the volatility, not by rotating through a basket.” 

Legally Bullish

Long-term plays or not, it’s no wonder that investors are excited to get exposure to the AI craze without having to commit to individual stocks, many of which have been volatile as investors weigh massive capital expenditures against potential returns. NVIDIA’s stock, for instance, sank to about $165 per share in April before soaring to above $230 in May. But AI has also helped accelerate a surge for thematic ETFs in general. Unlike previously popular niche funds like those focused on cannabis, these span many sectors including robotics, electric vehicles and data infrastructure: 

• “What qualifies as ‘thematic’ continues to evolve as yesterday’s niche becomes today’s mainstream allocation (e.g., space and memory),” J.P. Morgan Asset Management Chief ETF Strategist Jon Maier and ETF Strategist Shannon Oliver recently wrote in a blog. In an interview with CNBC, Maier added that infrastructure, energy and materials are all “feeding into the AI story.” 
• Overall AUM for thematic ETFs jumped by nearly 33% in the first half of the year to about $430 billion, J.P. Morgan found. 

Sweet Home AI: Performance-wise, some of the most popular AI funds are doing their part to keep investors’ portfolios in the black. The iShares AI Innovation and Tech Active ETF (BAI) is up around 30% year to date, while the Global X Artificial Intelligence & Technology ETF (AIQ) is up around 15%.