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How to invest in AI through ETFs

Lots of investors want to get in on the AI hype. For some, ETFs may be an option for those who are looking for an alternative way to invest. Todd Rosenbluth, Head of Research at VettaFi tells Yahoo Finance Live about some ETFs that provide exposure to the AI wave.

Video Transcript

SEANA SMITH: All right, well, Microsoft among the names at the center of the AI boom and now it's building on that bet, reportedly making a deal with CoreWeave, which sells access to Nvidia chips. But a big question, though, for investors is how to play the buzz around artificial intelligence. Let's get into it. Todd Rosenbluth, VettaFi Head of Research. For this week's ETF report, brought to you by Invesco QQQ.

Todd, it's good to see you here. So I think a lot of investors are trying to figure out how exactly is the best way to play AI and the hype, the boom around AI right now. What are you seeing just from a flow standpoint with ETFs that do have exposure to AI?

TODD ROSENBLUTH: Well, first, at VettaFi, we find that advisors are very interested in artificial intelligence, not only on the stock side. Obviously, you mentioned Nvidia and Microsoft, some of the leading companies that are exposed to it. But we recently surveyed financial advisors during an event that we held. And artificial intelligence as a theme was more popular than electric vehicles, more popular than clean energy, more popular than robotics.

69% of those that attended the event we had was looking towards artificial intelligence ETFs, according to the VettaFi data. Now, there's a number of ETFs that are out there. Global X has one of the larger ETFs. The ticker is AIQ. This is an artificial intelligence-focused ETF, that has about $200 million in assets under management.

It holds many of those large cap growth companies that we were talking about earlier and, again, happen to be trillion dollar or near trillion companies from market capitalization standpoint, diversified, and it's heavily exposed towards technology stocks. But exposure to communication services and consumer discretionary and a handful of industrial stocks.

The other stock that we're seeing interest in is a robo ETF. It's the robo artificial intelligence ETF. The ticker is T Ed-- I'm sorry, THNQ. Think is how I would say that ticker. And this ETF has some similarities in terms of what it owns, but also has health care companies like Illumina because artificial intelligence is tapping in and touching on many more of the sectors outside of the information technology space.

- Hey, Todd, so our ETF investor is sort of showing the same level of excitement they did for crypto and VR, with AI or is it even more than that?

TODD ROSENBLUTH: Well this year, it's even more. We're seeing money going into the artificial intelligence ETFs. Blockchain or crypto or blockchain, in particular, is another topic that is, of course, had a long history and a long term trend for investors. The leading ETFs in that space are seeing net outflows or if anything else treading water.

So an ETF like BLOK, which is an Amplify ETF, over $600 million in assets under management. Even though it's performing quite well, up 30% this year, we are not seeing the same level of investor interest in that the way that we are seeing artificial intelligence.

So it feels like AI ETFs have become the buzzword and the trend that investors are focusing on in 2023.

SEANA SMITH: Todd, talk to us just about how these hype the ETFs are constructed when it comes to thematic ETFs because AI, for example, you can have exposure to some of those pure plays. But then you could also have exposure to companies that have a little bit to do with AI. We're talking about Alphabet, so many companies that have so many other things going on in their other divisions. So how is that all constructed into these funds and then shaped for investors in order to choose?

TODD ROSENBLUTH: That's right. So if you own one of these ETFs, you're likely to have exposure to some of the same stocks that you'd find within the S&P 500 or the Russell 1000 growth companies like Amazon, like Alphabet, like Microsoft, like Nvidia. Those are companies that are exposed to artificial intelligence, but they aren't solely being driven by AI.

And then they'll also have exposure to some smaller companies that offer more reward potential because of the exposure they have to this long-term trend, but, of course, more risk. So you get the benefits of diversification with these thematic-oriented ETFs as opposed to trying to buy an individual stock, one or two, and hoping that it works out. But, of course, there's execution risk and not every company exposed to artificial intelligence is going to do as well in the future.

- Yeah. Todd, speaking of that you mentioned that Global X fund that has a-- it's not just directed towards AI as a number of other tech companies, including some consumer tech companies. Are ETF investors more interested in those broader baskets or do they want really hyper focused AI driven funds?

TODD ROSENBLUTH: So I think we're seeing a mixture where folks are exposed and interested in artificial intelligence. They're looking a little bit deeper and making sure that they have what they think they're going to have. I'd also note that there are ETFs that use artificial intelligence to pick the stocks.

So ETFs like AMOM, which is a craft ETF or AIQ, which is another ETF that's using artificial intelligence to pick the stocks. And I want to caution investors to make sure they're buying the right ETF for the right reasons. If they want to use AI to help them outperform and have broad exposure across a wide range of themes and sectors, those are appropriate ETFs. Whereas an ETF from Global X or from ROBO is more appropriate if you're looking to play the long-term trend towards artificial intelligence.

- And there's those robo advisors want to invest more money into themselves, right, for the future of their own benefit. So Todd Rosenbluth, thanks so much for joining us.