If you want exposure to artificial intelligence stocks, there are several ways to get it. There are Nasdaq ETFs, technology sector ETFs, and even Magnificent Seven ETFs that have quite a bit of assets invested in high-quality AI companies.
However, if you want a pure-play AI ETF and also want significant exposure to relatively smaller companies (not just the mega-cap tech stocks), one way to get it could be the Invesco AI and Next Gen Software ETF (NYSEMKT: IGPT) . While it isn't the right ETF for everyone, it could be a great way to get AI exposure for many investors. Here's a rundown of what the ETF is, how much it costs, and other important things to keep in mind.
What is the AI and Next Gen Software ETF?
As the name implies, this is an ETF that invests in artificial intelligence stocks, as well as companies that produce innovative software products. It is an index fund, tracking the STOXX World AC NexGen Software Development Index.
As of early July, the Invesco AI and Next Gen Software ETF held 101 different stocks in its portfolio, and it's worth noting that this is a weighted index fund, meaning that the larger companies will make up a larger portion of the fund's assets. Top holdings include Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) , Advanced Micro Devices (NASDAQ: AMD) , Meta Platforms (NASDAQ: META) , and Nvidia (NASDAQ: NVDA) , but there are also significant holdings of lesser-known AI and software stocks. About two-thirds of the fund's assets are in technology sector stocks, with another 20% in communications services stocks. Healthcare, real estate, and industrials make up most of the rest.
Expenses can be a bit of a drawback
Perhaps the biggest negative factor of this ETF is its fees. The Invesco AI and Next Gen Software ETF has a 0.60% net expense ratio, which means that for every $1,000 of assets invested in the fund, $6 will go toward investment expenses each year.
To be clear, this isn't a fee you have to pay. It will be reflected in the fund's overall performance. For example, if the underlying stocks produce a collective 10% total return over a one-year period, shares of this ETF should go up about 9.4%, after accounting for the fees.
I won't sugarcoat it: This is a rather high expense ratio, especially for an index fund. It's a general rule that the more specific and unique an index fund is, the higher the cost, but this is still on the higher end of the spectrum and is more in line with what could be expected from an actively managed ETF or mutual fund.
Is this the best way to invest in AI?
If you're looking for exposure to a portfolio of exclusively AI and innovative software stocks, this can be a great way to get it. However, it's worth noting that if you aren't worried about exclusively AI exposure, there's quite a bit of overlap between this ETF's top holdings, and some tech-focused index funds that cost a lot less. As an example, the Vanguard Information Technology ETF (NYSEMKT: VGT) shares 4 of the fund's top 10 holdings and has an expense ratio of just 0.10%.
The key question to ask yourself is whether you want a fund that is an AI pure play. If the answer is yes, and you're willing to pay a premium to get it, the Invesco AI and Next Gen Software ETF could be worth a closer look for you. If you want a lot of AI exposure but don't need a fund that invests in AI and related technologies exclusively, you might want to consider a lower-cost alternative.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Matt Frankel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy .
Most Popular
Comments / 0