More companies are using AI.
Artificial intelligence enables machines to learn from experience, adjust to new information and implement human-like tasks. Although the media focuses on self-driving cars, chess-playing computers and flashy uses of AI, the technologies which digest massive amounts of data can streamline and improve multiple aspects of our lives. In fact, AI is touching most modern industries including finance, national security, health care, criminal justice, transportation and more. Actually, it's difficult to find an area not touched by AI investment. Here are seven AI investing ideas that experts recommend.
Low-fee AI funds.
There are several AI exchange-traded funds to choose from. One way to narrow down the field and make a selection is to examine management fees. Lower fees mean less of your money goes into managements' pockets and more into the investment. One-year old iShares Evolved U.S. Technology ETF (ticker: IETC) levies an 0.18% expense ratio and uses proprietary algorithms to select technology shares. IETC's one-year return of 23% is more than double the 10.77% category average. For more AI options, iShares offers these low-fee funds: Evolved U.S. Consumer Staples ETF (IECS), iShares Evolved U.S. Financials ETF (IEFN), iShares Evolved Discretionary Spending ETF (IEDI) and iShares Evolved U.S. Media and Entertainment ETF (IEME).
Investments in the gaming industry.
The $735 billion U.S. media and entertainment industry is the largest in the world and projected to reach $830 billion by 2022, according to research by PricewaterhouseCoopers. Chance Butler, CEO at InvestingUnder35, says the industry will benefit from AI, as leisure time is freed up from the increasing robotic AI automations. Butler says: "The gaming industry is one of the fastest growing segments in entertainment, the push away from packaged games to digital downloads will quadruple profit margins over time. Mobile gaming is just beginning, and it opens up the field to new gamers, professional gaming, the list goes on and on." His favorite gaming picks are Activision Blizzard (ATVI) and Nintendo (NTDOY).
AI investments in developed markets.
EquBot AI Powered International Equity ETF (AIIQ) is an actively managed developed markets ETF that uses AI to analyze and select investments. The fund has a 14.6% year-to-date return. In comparison, the Vanguard FTSE Developed Markets ETF (VEA), which is a passively managed index fund that tracks the FTSE Developed All Cap ex US Index, generated a 10.9% year-to-date return. According to Art Amador, CEO of EquBot, "[AI is] spurring many asset managers and investors to rethink the way they invest and the approaches that underpin their research and portfolio construction approaches." EquBot uses IBM's AI Watson, which gathers big data to build predictive models and identify optimal investment timing and positioning.
Investing in AI customized solutions.
Many well-known companies are using AI to better understand their customers. For instance, Amazon.com (AMZN) and its competitors use big data and AI to understand and analyze shopping, browsing and demographic data, says Steve Chiavarone, vice president and portfolio manager and equity strategist at Federated Investors in New York. This allows the company to market directly as well as advertise products and services that reflect customers' shopping and browsing patterns. Amazon is working on another AI powered product: An Alexa-powered wearable device that will read human emotions and help them better interact with others. Doubling in price since 2014, McDonald's Corp. (MCD) has embraced AI solutions and technology, with ordering kiosks and delivery services.
Funds that focus on robotics.
Stock picking is risky. The burst of the dot-com bubble in the early 2000s reminds investors that it's difficult to pick the winners and losers. Instead of trying to decide who will last, investing in a fund spreads the risk around. Robotics is the field of robots, which are trained to perform as humans, is a clear example of AI in practice. For a direct link to robotics investing, Butler recommends two popular robotics funds: iShares Robotics and Artificial Intelligence ETF (IRBO) and Robo Global Robotics and Automation Index ETF (ROBO). The new fund, IRBO returned 19% this year, while ROBO has a year-to-date return of 16.7%
Robo advisors that implement AI applications.
Using AI and proprietary algorithms can drive better investment decision-making. Big data and AI allow for faster and more powerful factor analysis, helping portfolio managers craft optimal combination of traditional and emerging factors to drive sustainable alpha. This is a core element at Federated Investors, which applies these techniques across multiple asset classes, Chiavarone says. Actively managed robo advisor Elm Partners, founded by Victor Haghani, uses sophisticated computer models to capture value and momentum investment strategies, smoothing out volatility and maximizing investment returns. In fact, more robo advisors are implementing AI applications to actively manage their investment portfolios in an attempt to beat the market.
Picking top AI stocks.
If you're a stock picker and want to create your own AI stock portfolio, consider adding these firms. Micron Technology (MU), a memory chip manufacturer is likely to benefit from the demand for growing computing power. Nvidia Corp. (NVDA), another leading chipmaker, is also in thick of the AI trend. Baidu (BIDU) is another one. The massive Chinese internet company invests heavily in AI. With about 1.4 billion Chinese citizens, Baidu can capture a tremendous amount of machine learning data to both use and sell. With China prioritizing AI nationwide, this is a solid play. As AI continues to seep into the marketplace, more and more companies will benefit from this growing trend.
There are several ways to investing in the AI trend.
-- Low-fee AI funds.
-- Investments in the gaming industry.
-- AI investments in developed markets.
-- Investing in AI customized solutions.
-- Funds that focus on robotics.
-- Robo advisors that implement AI applications.
-- Picking top AI stocks.
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