The AI boom could produce many winners and losers. This is how I set up my portfolio for success.
If you have been following the stock market at all, you know that artificial intelligence (AI) is one of the most exciting trends right now. Many of the top AI stocks, like NVIDIA, AMDAnd alphabethave pulled back significantly from their recent highs, so it might be a good time to get into the AI space if you missed the initial boom.
I don’t have much AI exposure in my portfolio. I have a few stocks of companies that To use of AI, but I do not own any of the chip manufacturers, AI software companies, or other companies that I would consider direct AI players.
The main reason is that AI stocks are not really my specialty. I consider myself very good at analyzing and evaluating banks and real estate stocks, so they make up a large part of my portfolio. However, I would like to some I want to get involved with AI and plan to do this through exchange-traded funds (ETFs). I plan to open small positions in two AI-focused ETFs over the next few weeks, one of which is a passive index fund and another of which is an actively managed one.
An AI index fund
The first of the two is the iShares Future AI & Tech ETF (ARTY 0.15%). This is an ETF designed to track an index of companies that directly contribute to generative AI, AI data, AI infrastructure, or AI software and services. It has an expense ratio of 0.47%, which is higher than many index funds but reasonable for such a specialized fund.
According to current information, the ETF has 49 stocks in its portfolio and its top holdings should not come as a big surprise. BroadcomNvidia and AMD make up the top 3. No stock makes up more than 6% of the portfolio, so it is a fairly diversified index fund.
With net assets of about $600 million, this is a relatively small index fund, but a solid, pure-play fund focused on AI technology with a significantly lower expense ratio than most comparable ETFs.
A hand-picked AI portfolio
The other AI-focused ETF I am looking at is the Ark Autonomous Technology and Robotics ETF (ARKQ 1.38%)managed by Cathie Wood’s Ark Invest.
This ETF has net assets of just under $800 million and, as mentioned, is an actively managed fund, meaning that Wood and her team hand-pick stocks that they believe will outperform relevant benchmarks. Because of its active management, it has a slightly higher expense ratio (0.75%), but this is quite reasonable for such a specialized, actively managed fund.
This is not a pure AI ETF. It invests in a variety of technologies, the most many of which should benefit from AI advances. These include robotics, smart devices, autonomous vehicles, and next-generation cloud computing, to name a few.
The fund is quite concentrated, with the three largest holdings – Tesla, TeradyneAnd Kratos Defense & Security – that’s about 32% of assets. In short, I prefer the iShares ETF to get a broad portfolio of AI stocks and the Ark ETF to invest in the companies that will benefit the most from the development of AI.
I’ll start with a small bite
To be clear, these will be relatively small positions in my portfolio – at least initially. I still think many AI stocks are a bit expensive. Since I view these as long-term investments, I plan to gradually build a position over time. That way, I have some immediate exposure, but when the market sells off again, I can take advantage and add shares at a cheaper price.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Matt Frankel does not own any stocks mentioned. The Motley Fool owns and recommends Advanced Micro Devices, Alphabet, Nvidia, and Tesla. The Motley Fool recommends Broadcom and Teradyne. The Motley Fool has a disclosure policy.
