Buy This, Not That: Are AI ETFs Worth Your Time?

Shah Gilani|August 21, 2024

A lot of you have been asking about AI ETFs.

Everyone wants to invest in artificial intelligence since, clearly, it’s the future. But picking the right individual company seems overwhelming.

So… many investors are turning to ETFs. They figure it will give them exposure to all those juicy gains in the sector without the risk of betting on the wrong horse.

ETFs are pretty much designed with this idea in mind.

But there’s a problem.

I’ll explain what that is in today’s edition of Buy This, Not That. I’ll also look at five popular AI ETFs and give my thoughts on whether any of these funds are a “Buy” right now.

Click here or on the thumbnail below to dive in.

Transcript

Hey, everybody. Shah Gilani here with your weekly BTNT as in Buy This, Not That. If you haven’t noticed, I’ve got a little frog in my throat. Call it a summer cold, but it’s certainly affecting my voice. So apologies for that.

A lot of you have been asking about ETFs. In particular, AI focused ETFs. Why? Because we know AI is everything.

It is the future. It’s here now, and ETFs are, of course, a great way to get involved in things that maybe you wanna overdiversify in – not – but you don’t know which particular stock to go to. So you go to an ETF. When it comes to AI, there’s a lot of unknown.

There are a lot of companies that say they’re in the AI space. And, of course, there are other giants that we know are. So I think a lot of you find it easier and maybe go looking for hunting for AI related, AI centric ETFs. So today, I’m gonna hit you up with some of those.

And I’m gonna bring up the old graph, and let’s go from the get-go. From the get-go, first up that I got asked a lot about is the ARK Autonomous Technology & Robotics ETF (ARKQ).

Now ARKQ is a managed fund. I think it’s overly managed. I’m not really keen on the management, not to to throw Cathie Wood under the bus, but, okay, I’m going to. Not a big fan of her management.

I think she follows trends. Sometimes in the very beginning when she took off in the pandemic, she was spot on. She’s I think now thinks that she sees the trends before they happen. She gets in too early on things that aren’t working, then she gets out too soon on things that are working.

I’m not a fan of her management style. Looking at ARKQ, look at this. This is a one year chart. Why bother people as far as ARKQ?

Again, this is a managed fund. You have to really rely on the manager and what they’re doing. I think they’re spread way too thin. We’re talking about spreading out too many positions.

Tesla, the number one position in the fund, fourteen percent. Is Tesla an AI related company? Probably, you can make a good case for that. Yes.

Certainly technology, but AI, not so much. Teradyne is the number two position. Kratos Defense, KTOS number three. Iridium Communications, Trimble.

I’m just not a big fan of that portfolio. So the answer for would you buy this, should you buy this, the answer is not, people. So there’s the one year chart. It doesn’t even look good in the one year chart.

Look at a five year chart. If you rode that thing up, you would have been happy all all the way to here where you’re north of a hundred dollars, and now you’re at fifty five and change. Not a very good ride from 2021. Exactly got it wrong.

Okay? One year, it’s still flat. So people, this is what you should be looking at when you’re looking at ETFs. Don’t look at just the one year performance or what things have gone on lately because you might see, oh my gosh, great performance but look over the longer term and get some perspective as far as ARKQ. It’s a not.

Next up, I’m gonna go to WisdomTree Artificial Intelligence Fund (WTAI).

Now WTAI, a lot of people have asked me about this. Wisdom Tree is a great ETF sponsor, the artificial intelligence innovation fund. Wow. That sounds great.

But let’s go take a long look at it. One year. Not impressed. Sorry.

I’m not impressed with the holdings in them. It’s way too diversified. You diversify yourself into practically nothingness.

NVIDIA, 2.97 percent. Great. NVIDIA should be a huge holding. 2.97 percent of the fund.

ARM, 2.72 percent. Broadcom, 2.4 percent. Apple, 2.37. Too many small positions that are going to send the fund in all kinds of different directions with a large portfolio of small positions in each.

Not really the way you want it to go. If that’s what you think you wanna get in an ETF, you’re thinking incorrectly. You wanna have some heavy weight in the stocks that are doing well, that are the leadership group. And as far as WTAI, the WisdomTree Artificial Intelligence Innovation Fund. Not people.

Here’s what it looks like in the five year. And it actually goes back to, we’re getting all kinds of nonsense setting up here, but I’m looking at let’s see if it’s just sharing properly.

It should be.

No. It’s not. So we have to stop the sharing. Here’s the problem. What I have sometimes with this computer, let’s see if I can get back on track with that.

And now I bounced out. Getting some strange stuff happened to my computer every time I click on a stock or something like that. Now I’m getting all these ads sent up. I gotta figure out that just started happening this morning.

So as far as WTAI, you look at the three years chart, it’s straight down. It’s a nothingburger.

The next stop I’m gonna go to is the Invesco AI and Next Gen Software ETF (IGPT).

Again, this is all over the place.

Does it look good? It’s got the better positioning in terms of Google is probably 8, almost 8.25 percent of the position. Meta, 7.93 percent. So some of the better names are up top, but I don’t think they’re strong enough. And you got AMD and Nvidia around 7.5 percent. So, yes, better, but it’s still too diversified.

As far as IGBT, it’s a not because the stock was $62.

It’s now $45. It was $62 in February 2021. So if you thought this is gonna be a good ride, it’s not. It’s been down.

So it’s not a long term hold. Yeah. Maybe in one year, it looked a little better, but it doesn’t have enough focus on the stocks that are moving, which I’m gonna get to at the very end here. This is the problem with some ETFs.

They’re either too diversified or managed improperly.

But the for the most part, you want to find ETFs that have really the leadership names in the sector that you really bind the ETF for. And if it’s AI and you got 2.5 percent positions in great companies and you’ve got fifty of them, that’s not going to move the dial. It may move them for a while, but then it may fall out of favor. That’s a problem.

So IGBT waste of money. The answer there is not.

Next up is, the Global X Artificial Intelligence & Technology ETF (AIQ).

Now I like AIQ. It’s performed better than the others I just talked about. AIQ is spreading around 34 dollars and change.

You know, it’s a little too spread out for me, but the performance has been better because their number one holding is NVIDIA. And if your number one holding is NVIDIA, you’ve done well. But number two is Tencent. Tencent’s been all over the place.

Broadcom, number three, only 3.5 percent of the portfolio in Broadcom. Not enough. Netflix, 3.47 percent. Yes.

Netflix has done really well, but, it’s just too spread out too thin. But I like it because it’s one year performance has been good. But then again, you look at a longer term basis, this stock on on October 26 of 2023 was $25.50. It got to $37.18 in July of this year.

It’s back down at $35. Yeah. It had a nice run from the lows of last year up about 45 percent to the highs this year, but it’s come back down. Is it something you wanna chase in here?

No. So I say AIQ, sorry, but it’s not.

There was one in the group that I liked, and that is the iShares US Technology ETF (IYW). And I wish I could pull the chart up again because on a one year basis, it looked good.

But also longer term, it’s done a lot better. It’s got less volatility. It’s more consistent. And the reason is bigger positions, bigger portfolio positions in companies that are moving the dial.

Because it’s holding Apple at 15.78 percent of the portfolio.

Microsoft, 15.15 percent. Nvidia, almost 13.5 percent. So that’s those three positions are 44.5 percent of the portfolio.

That’s why IYW has done well. IYW is gonna continue to do well because it’s top loaded with the right companies. So IYW, yes. It’s the only one of this group that I think is a buy.

What you should be buying is you go into these AI centric companies, the ETFs, and you look for the companies within ETFs that are performing.

Where is the performance coming from in a diversified ETF? If you realize it’s coming from NVIDIA and maybe Apple or NVIDIA and Apple and, say, Google, then you don’t need to buy the whole ETF to get all the rest of those stocks, people. You need to cherry pick within the ETFs in the AI space and look at the stocks that are moving the ETFs.

Those are the ones you want. You wanna cherry pick those. When I’m looking in sectors that I’m not intimately familiar with, I look at ETFs to get an idea of within those ETFs, how are they doing, and what’s moving those ETFs.

I look for the mover stock, the movers and shakers within the ETFs that are driving the performance of the stock. The rest of them are just weighing it down.

That’s what we do in my services. And Launch Investor and Alpha Money Flow, we look at mover shaker stocks. So when it comes to AI, we’re not chasing ETFs. We’re chasing the likes of the movers and shakers that are moving and shaking the ETFs. It’s about stock selection.

So, yes, you can look at any number of these ETFs on a one year basis. Some of them are up 40 percent. One of them is up 66 percent, and it’s all good. But if you look at the portfolio, you look at what what a outsized position for example, NVIDIA has one.

You realize that NVIDIA is up 182 percent this year. That’s where the performance is coming, so you should own NVIDIA. You should own the mover shaker stocks. And, again, that’s what we do in my investor services is the paid for subscription services.

Yes. That is a solicitation, people. Launch investor, alpha money flow, that’s what we do. We find the movers and the shakers.

These ETFs, good luck with them. But AI, that’s not a matter of luck. That’s a matter of hitting it out of the park. I’ll catch you guys next week.

Cheers.