To say that artificial intelligence (AI) looks like being an important theme is something of an understatement. According to a recent report, the market is expected to hit a value of $300bn by 2026. As a growth-focused investor, it seems rational for me to get some exposure to the space sooner rather than later. Based on recent performance, here are three of what could be the best funds for me to buy now.
Top dog
Allianz Global Artificial Intelligence has delivered stunning gains over the last three years — managing an annualised return of 34.5%. That’s far higher than its benchmark of 21.4% and surely makes it a prime candidate to receive my money.
Even so, the extremely high exposure to US stocks is worth noting. No less than 87.5% of assets are invested in companies based across the pond. That’s fine if these stocks keep performing. However, this focus does make me a little nervous considering how stretched valuations are looking. Perhaps unsurprisingly, Tesla is one of the biggest holdings.
Another thing I’d need to bear in mind is the pricey ongoing charge of 1.13%. Existing holders might say there’s no point quibbling when one takes into account the gains already made. As a (stubborn) long-term investor, however, I know costs really matter. More on this in a bit.
Concentrated portfolio
Sanlam Artificial Intelligence Fund is an alternative to Allianz. Importantly, its exposure to North America is lower at 64%. There’s also money invested in Japanese companies and a stronger liking for emerging market plays.
This geographical diversification is comforting. Nevertheless, it appears to have come at the expense of performance. In the last three years, Sanlam has managed an annualised return of 26.4%. That’s still superb. However, it’s clearly a lot less compared to its rival.
Whether this difference reduces in future depends greatly on the stock-picking prowess of both funds, but particularly Sanlam. Here, management adopts a high-conviction approach with just 37 holdings compared to 80 over at Allianz. This may make it the best fund to buy in the long term if (and I can’t emphasise that last word enough) these picks emerge as the true winners in the space. Unfortunately, nothing can be guaranteed.
Having said this, an ongoing charge of 0.52% feels like great value for an active fund.
A passive option
There’s an even cheaper way for me to get access to the AI growth story. WisdomTree Artificial Intelligence (LSE INTL) has an ongoing cost of 0.4%. That’s nowhere near as low as I might pay for a bog-standard FTSE 100 tracker. For a passive vehicle in this potentially explosive part of the market, however, it looks reasonable.
At 56%, exposure to the US market is the lowest of the three funds mentioned. Again, this is a double-edged sword. A lower percentage could conceivably mean less volatility if Uncle Sam stumbles. But it could also mean lower gains if America ‘wins’ the AI crown. Not that performance seems an issue just yet. INTL’s share price is up almost 41% over the last year.
Of course, a single 12-month period isn’t sufficient to make a firm conclusion on this fund’s quality. I must also remember that this ETF’s portfolio is, by its very nature, constructed using fixed quantitative rules.
If I wanted a more nuanced approach, either Allianz or Sanlam might be the optimal choice.
