Follow the money into Artificial Intelligence

I was curious to understand where investors are placing their bets about the future of Artificial Intelligence (AI), so I took a look at three ETF’s focused in investing in companies which derive the majority of their revenues from AI, ROBO Global Robotics & Automation Index ETF (ROBO ), Global X Robotics & Artificial Intelligence Thematic ETF (BOTZ ) and iShares Robotics and Artificial Intelligence ETF (IRBO). ROBO and BOTZ currently have the lion share of the assets, but a new entrant from the biggest ETF issuer, BlackRock, is looking to challenge this via IRBO.

I was particularly interested on which countries are receiving capital, which type of companies are seeing the biggest allocations and how similar/different was the approach taken by each ETF manager.

The reason I chose ETF’s is that their holdings and allocations are public information, and they are the primary vehicle for retail investors to make this type of theme investment nowadays. Here are my findings based on their holdings at the time of writing this article.

The three ETF’s have nearly $4.5 Billion in assets, allocated across 182 companies, in 16 countries. The investments are highly concentrated, with the majority of the companies located in the United States (79), Japan second (35), and Germany, South Korea, Taiwan and China tied at third place (10 each). The US and Japan are the primary domicile of 63% of companies in the ETF portfolios.

Dollars allocated are a similar but different story, although the US is the domicile for 43% of the companies, it only receives 37% of the dollars invested ($1,6 Billion), while japan with only 19% of the companies receives 33% of the funding ($1.4 Billion). Between the two countries they received 70% of the ETF's portfolio investments.

As far as diversification, there are six companies which have received investments from all three ETF’s: Fanuc Corp (Japan), Intuitive Surgical Inc (United States), iRobot Corp (United States), Mazor Robotics (Israel), Nvidia Corp (United States), and Yaskawa Electric Corp (Japan), receiving almost $1 billion in combined assets.  An additional 31 companies are held by two ETF funds and the remaining 145 companies are held only by one ETF.

A cursory look at the six companies held by all three ETF’s was quite interesting, of course NVDIA is there since it is powering the explosion in AI via their GPU boards, but the other five companies are surprising. There is Fanuc Corporation and Yaskawa Electric Corporation which are both factory automation manufacturers, Intuitive Surgical and Mazor Robotics which are medical device manufacturers, and there is iRobot Corp which manufactures retail and military robots. For such leading-edge sector with far reaching implications into the future, these five companies seem right down boring or at least not at the edge of what Artificial Intelligence can do, but rather focused on solving and optimizing existing opportunities.

The US and Japan have the lion share of suitable companies which can be held in an ETF portfolio because they are further along the cycle of Artificial Intelligence and for portfolio managers makes sense to invest in companies that can solve a now problem and have financials that can withstand a financial analysis. However, I expect that the type of companies, the locations of the companies and the available investment opportunities in the sector will change significantly in the near future as the technology matures and the applications become more widespread, what is clear is that we are still early.