ETF Talk: AI is ‘Big Generator’

Second nature comes alive
Even if you close your eyes
We exist through this strange device

— Yes, “Big Generator”

Artificial intelligence (AI) has captivated our imaginations and industries on a global scale. We are, like the Yes lyrics above, starting to see our existence through what may seem like strange (AI) devices.

But you may need to blink more than once before you miss the AI trend. It has been booming in 2023, and seems poised to continue its growth into 2024 and beyond.

Reaching into sectors from technology and communication to healthcare and retail (and sooner than later, perhaps, into the most mundane aspects of our daily lives), AI is a central new technology that has companies and investors buzzing with excitement.

Your editor listening to “Big Generator” by Yes, while also rocking the band’s t-shirt.

Major leaps in generative AI have come from heavyweights such as Microsoft Corporation (MSFT), Alphabet Inc. (GOOG), Amazon.com, Inc. (AMZN) and Meta Platforms, Inc. (META). In addition, Intel Corporation (INTC) and Advanced Micro Devices, Inc. (AMD) seek to challenge leading AI chipmaker Nvidia (NVDA) for the top spot in AI chip production. The stage now is set for potentially significant growth across multiple sectors.

And investing in those hard hitters is certainly tempting. But for those who are looking for diverse exposure to the broader value chain as the development of AI technologies ramps up, let me introduce iShares Robotics and Artificial Intelligence Multisector ETF (IRBO).

IRBO is a passively managed, equal-weighted exchange-traded fund by iShares that tracks the performance of the NYSE FactSet Global Robotics and Artificial Intelligence Index, which measures the performance of equity securities across multiple sectors, including information technology, communication, industrials, consumer discretionary and health care.

The fund is composed of developed and emerging market companies that could benefit from the long-term growth and innovation in robotics technologies and artificial intelligence.

As such, IRBO invests significantly in mid- and small-cap companies, alongside more established large-cap companies. It also invests 46.1% of its holdings in non-U.S. stocks for a broader geographical exposure. Top countries include the United States, 53.90%; China, 12.24%; Japan, 9.48%; Taiwan, 7.64%; France, 2.83% and South Korea, 2.60%.

Its equal-weighted stock strategy means that all holdings are allocated the same weight across the portfolio, giving investors even access to companies producing AI and robotics hardware, software and components and to smaller companies with the potential for growth.

This strategy also allows the fund to remain less volatile than similar funds. And it has made a solid recovery from its 2022 downward trend. As the chart below shows, it is currently sitting above its current 200-day moving average and has been in an upward trend since the start of the year.

Source:StockCharts.com

The fund’s top 10 holdings include Snap Inc. Class A (SNAP) (formerly Snapchat, Inc.), 1.1%; Autostore Holdings Ltd. (AUTO), 1.06%; Maytronics Ltd. (MTRN), 1.06%; Silicon Laboratories Inc. (SLAB), 1.05%; Atmos Energy (ATO), 1.05%; Lumen Technologies Inc. (LUMN), 1.04%; DigitalOcean Holdings, Inc. (DOCN), 1.04%; Lattice Semiconductor Corp. (LSCC), 1.03%; Genius Sports Ltd. (GENI), 1.01% and Advanced Micro Devices Inc. (AMD), 1.01%.

IRBO has $536.09 million in assets and a price-to-earnings (P/E) ratio of 21.94. The fund is up 5.93% over the last month, 13.45% over the last three months and 35.24% for the year to date. It has an expense ratio of 0.47%.

As we look forward to a new year and new advancements in AI, perhaps we’ll find out if, like androids, AI dream of electric sheep.

Finally, remember that I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You may just see your question answered in a future ETF Talk.