This ETF Could Be the Easiest Way to Own the Future of AI | The Motley Fool

It’s clear that artificial intelligence, or AI, is one of the most transformative technologies of our time — and one of the most exciting investment opportunities. However, many investors are a bit intimidated when it comes to selecting which AI stocks to invest in, and understandably so. After all, there are likely to be some big winners, but not every AI stock will produce stellar investment results.

With that in mind, for many investors, a better approach might be to invest in a AI exchange-traded fund, or ETF, that does the hard work for you. One that looks particularly interesting is the Ark Autonomous Technology & Robotics ETF (ARKQ 0.98%), a Cathie Wood ETF that aims to find the best opportunities in several AI-related areas.

A portfolio of outside-the-box AI stocks

One of my biggest complaints about investing in artificial intelligence ETFs is that there isn’t too much variety, especially when it comes to the largest holdings. In most AI ETFs, you’ll find large positions in Nvidia (NVDA 0.94%), Meta Platforms (META -0.36%), Broadcom (AVGO 1.18%), and Advanced Micro Devices (AMD 2.00%).

The Ark Autonomous Technology & Robotics ETF certainly has some exposure to the bigger AI names, but they aren’t quite as much of a focal point of the fund. For example, Nvidia and AMD are the 13th and eighth largest holdings, respectively.

The largest holding of the ETF, making up 10.7% of the assets, is Tesla (TSLA -0.01%), which might surprise you. But the leading electric vehicle manufacturer has a lot of AI involvement when it comes to developing autonomous driving systems, energy storage products, and more.

Beyond Tesla, the rest of the top five include:

• Kratos Defense and Security (KTOS 1.96%): 9.6% of portfolio.
• Teradyne (TER 1.97%): 7.3% of portfolio.
• Palantir Technologies (PLTR 2.00%): 6.3% of portfolio.
• Archer Aviation (ACHR -1.71%): 5.3% of portfolio.

In short, this is certainly a concentrated portfolio, There are only 35 stocks in the ETF and the 10 largest positions account for 60% of the fund’s assets. But as an actively managed fund, it is concentrated in stocks Cathie Wood and her team feel have the best long-term potential, not just the largest AI stocks in the market.

A word about fees

The Ark Autonomous Technology & Robotics ETF has a 0.75% expense ratio, which is certainly a relatively high fee structure when compared with an S&P 500 ETF or the Invesco QQQ ETF (QQQ 0.12%) that tracks the Nasdaq. In a nutshell, it means that you’re paying $75 in annual investment fees for a $10,000 investment.

However, this is actually quite reasonable for an actively managed ETF. In fact, the most popular AI index funds, which simply aim to match a benchmark index, have expense ratios that are comparable — or that are even higher in some cases.

To be clear, an ETF expense ratio isn’t a fee you have to pay. You won’t receive an annual bill or anything like that. But it will be reflected in the fund’s performance over time.

A solid track record, but a bit of a roller-coaster ride

Although it hasn’t exactly been a smooth ride, the Ark Autonomous Technology & Robotics ETF has delivered excellent performance for long-term investors. Since the fund’s September 2014 inception, it has delivered annualized returns of about 15.7% for investors. This means that a $10,000 investment less than 11 years ago would be worth nearly $50,000 today.

That also brings up a great point for investors to keep in mind. This is designed as a great way for long-term investors to get exposure to the future of AI. It has been very volatile for its first decade and will likely continue to be. But for those who believe in the potential of AI and robotics to completely transform the world over the next couple of decades, this could be a great way to invest without too much risk from any individual stock.