Exchange-traded funds (ETFs) that track the FTSE 100 and S&P 500 remain firm favourites with UK investors. It’s easy to see why, as both indexes have been performing nicely over the past couple of years.
However, for growth investors wanting something a bit more niche, I think these three ETFs are worth a gander.
Digitilisation
Up first is the iShares Digitalisation ETF (LSE:DGTL). This holds 206 stocks that are generating significant revenues but still have growth potential due to the “increasing prevalence and application of digital services”. What I like here is that the ETF isn’t dominated by the usual tech names like Microsoft, Apple and Nvidia, which would make it similar to the S&P 500. As of 27 August, the top five positions were occupied by Oracle, Shopify, Cash App-owner Block, used car vendor Carvana, and eBay.
Other larger holdings include Netflix, Amazon, and Spotify. Meanwhile, digital payments is a prominent theme, through the likes of Visa, Mastercard, PayPal and Latin America’s MercadoLibre.
Digitalisation is a structural shift reshaping how the world buys (e-commerce/contactless payments), works (cloud computing), and plays (social media and streaming). To me, the ETF looks well placed to benefit from this, even though it echoes the risks of each individual stock it holds.
Robotics
The second one is iShares Automation & Robotics ETF (LSE:RBTX). This gives investors exposure to shares benefitting from the development of automatic and robotic technology.
Right now, this industry’s booming due to advances in artificial intelligence (AI). The ETF holds Advanced Micro Devices (AMD) and Nvidia in semiconductors, as well as plenty of industrial automation leaders such as ABB, Siemens, Rockwell Automation, and Emerson Electric.
One risk to be aware of here is that the top of the ETF does lean quite heavily into semiconductor stocks. If this one sector slumps — for example, due to a chip cycle downturn — then the fund could take a hit. Nvidia, for instance, is currently trading near an all-time high.
However, there are 139 different holdings, so it’s well diversified. And over time, I expect this one to do well too.
According to Zion Market Research, the global robotics and automation market’s estimated to grow at a compound annual rate of around 38.2% between 2024 and 2032.
Artificial intelligence
Of course, I couldn’t finish without including the biggest technological trend of our time: AI. The iShares AI Innovation Active ETF (LSE:IART) aims to tap into this spectacular growth by owning AI-related stocks.
Now, I’d say this ETF’s higher in risk because it was only launched in January. Consequently, it has just 39 holdings so far, meaning it’s more heavily concentrated.
Also, the base currency is US dollars. If the dollar weakens against sterling, returns could shrink when converted back (and vice versa). This currency risk also applies to the iShares Digitalisation ETF.
Nevertheless, AI’s developing so rapidly that it could unlock incredible amounts of business productivity, especially as the technology’s still at a very early stage. Indeed, it’s slightly frightening.
We’re at the beginning of a new industrial revolution.
Nvidia CEO Jensen Huang.
As well as the tech giants, the ETF holds Snowflake and web security firm Cloudflare as top 10 holdings. Snowflake stock surged 20% on 28 August as company reported a blockbuster Q2, with growing adoption of its AI-powered data cloud.
