Artificial Intelligence (AI) has been one of the most exciting and rapidly evolving fields in recent years, with its impact being felt across various industries.
There are various definitions of AI. One common definition according to Encyclopaedia Britannica is “the ability for a computer to perform a task commonly done by a human”. ChatGPT has been one of the most popular AI inventions of the 21st century with the ability to generate coherent and contextually appropriate responses.
There are many AI companies listed across global share markets that investors can gain exposure to and tap into a growing market trend. However, for many people, investing in individual AI companies can be a challenging and time-consuming process. Fortunately, there is an easier way to invest in AI through exchange traded Funds (ETFs).
In this blog, we will explore how you can invest in AI, like ChatGPT, through Australian-listed ETFs. These ETFs provide you with the opportunity to tap into the potential of this nascent technology without the need for extensive research and analysis.
Best AI ETFs on the ASX
The best AI ETFs on the ASX that provide exposure to the growing AI theme are:
- Betashares Global Robotics and Artificial Intelligence ETF (RBTZ)
- Global X ROBO Global Robotics & Automation ETF (ROBO)
Technically, there are currently no pure-play ETFs in Australia that invest solely in generative AI technology like ChatGPT. However, ROBO and RBTZ do provide exposure to AI technology.
The term “pure-play” refers to focusing solely or narrowly on something such as a thematic category to invest in. Generative AI refers to a type of technology that is designed to create original content which is indistinguishable from humans.
ROBO is the biggest ETF in the category managing almost $230 million, while RBTZ manages more than $162 million. ROBO was launched in 2017 and RBTZ in 2018. RBTZ is slowly catching the former and has taken in more money over the last year. ROBO has seen net outflows of $3.8 million over the past year, while RBTZ gained $5.7 million in net inflows.
RBTZ is the cheapest ETF in this category charging 0.57% per year (i.e. $57 per year for every $10,000 invested) but it does come with slightly higher spreads (the cost of getting in and out). ROBO’s fees are more expensive at 0.69% due to the more active nature of the investment strategy and have tighter spreads of 0.20%.
|TICKER CODE||Management Fee||BUY/SELL SPREADS (SLIPPAGE)|
Both ROBO and RBTZ have similar levels of liquidity with an average of $323,000 and $392,000 traded each day respectively. These volumes are very small in comparison to most Australian and global share ETFs, due to their niche nature.
ROBO is more active than RBTZ. ROBO has a highly specialised and experienced index committee that determines which stocks qualify for inclusion. They take into consideration companies based on revenue generated from robotics and automation.
RBTZ follows a more traditional rules-based index approach. RBTZ filters companies that generate a significant portion (i.e. >50%) of their revenue from industries such as industrial robots and AI. Their index committee has some minor oversight.
There may be more portfolio turnover (i.e. changes of the underlying stocks) in ROBO given it rebalances quarterly whereas RBTZ rebalances yearly.
Holdings and exposure
From a geographic perspective, ROBO has better diversification to more European and Asian markets, while RBTZ has quite a heavy focus in Japan. The way the ETFs weigh their holdings also differs as RBTZ weights its constituents by market capitalisation (i.e. the largest-sized companies have the highest weight), while ROBO is equally weighted (i.e. every stock gets an equal weight). Due to this, RBTZ is quite concentrated in the top 10 holdings (which account for 67% of the entire ETF), with a larger cap focus, while ROBO has more small and mid-cap names. For example, NVIDIA makes up 1.5% of ROBO but 8.6% of RBTZ. Due to the different investment strategies, there is a small overlap of only ~25% of common holdings.
|Top 10 Holdings||ROBO||RBTZ|
|1||Harmonic Systems (2.2%)||NVIDIA (10.4%)|
|2||IPG Photonics (2.0%)||ABB (9.2%)|
|3||Hiwin Technologies (1.8%)||Keyence (9.1%)|
|4||FANUC (1.8%)||Intuitive Surgical (8.4%)|
|5||Kardex (1.7%)||FANUC (8.1%)|
|6||Rockwell Automation (1.7%)||SMC (4.8%)|
|7||Zebra Technologies (1.7%)||Yaskawa Electric (4.6%)|
|8||NVIDIA (1.7%)||Omron (4.5%)|
|9||ATS (1.6%)||Dynatrace (4.3%)|
|10||Teradyne (1.6%)||Cognex (3.6%)|
|Weighting in top 10||17.8%||67.0%|
Performance and risk
ROBO has outperformed RBTZ since their common inception in 2018. Over the last three years, ROBO returned 10.8% p.a. while RBTZ returned 5.4% p.a. Over the past year ROBO has been more defensive, falling 3.4% while RBTZ has lost 10.1%.
Nicher thematic ETFs like those that invest in AI can be quite risky and experience sharp drawdowns. For example, during 2022, RBTZ fell by as much as 46% whereas ROBO fell by 34%.
|Ticker Code||ETF Name||1 Year Return||3 Year Return||5 Year Return|
|ROBO||Global X ROBO Global Robotics & Automation ETF||-3.4%||10.8%||7.4%|
|RBTZ||Betashares Global Robotics and Artificial Intelligence ETF||-10.1%||5.4%||N/A|
RBTZ has experienced more risk than ROBO given its stock concentration. RBTZ only holds 43 stocks while ROBO is more diverse holding 80. ROBO’s underlying index has been around for a decade while RBTZ’s index was launched in 2016.
|Ticker Code||Index Name||ETF Inception Date||Index Inception Date||Dividend frequency||Number of holdings||Index 5 Year Return (p.a.)|
|ROBO||ROBO Global Robotics and Automation Index||13 September 2017||2 August 2013||Annual||80||8.1%|
|RBTZ||Indxx Global Robotics & Artificial Intelligence Thematic Index||12 September 2018||29 August 2016||Annual||43||2.84%|
Conclusion and Stockspot view
If investors want a purer play exposure to the AI theme, RBTZ probably gets the upper hand but does come with more volatility from its sector, regional and individual security concentrations. ROBO offers investors more diversification and the ability to spread risk across a broader set of stocks (including smaller companies).
Overall, thematic ETFs should only make up a small part of an investor’s portfolio, with the majority invested in low-cost simple vanilla ETFs that give broader asset class exposure such as Australian shares, global shares, bonds and gold. This is because thematics can quickly shoot the lights out of performance (like they did in 2020/2021) but can also experience sharp falls too (like we saw in 2022). It’s generally why we prefer to avoid thematic ETFs.