Is it wise to purchase an AI ETF?

Even though there have been difficulties this year, such as withdrawals from US ETFs, artificial intelligence remains a crucial theme in investing

Consider investing in an AI ETF.

To get exposure to one of the most popular investment trends, it's easy to purchase an AI exchange-traded fund (ETF). Is now the right time to purchase an AI ETF, though, given that 2025 will present new difficulties for the leading US tech companies?

Since ChatGPT's November 2022 launch, artificial intelligence (AI) has become a global sensation. Big tech companies like the Magnificent Seven have since taken over the top funds and stocks worldwide.

Thanks to the growing significance of AI, Nvidia recently became the first £4 trillion company in the world, with its state-of-the-art AI chips highlighting this revolution.

However, there are some people who are against the AI boom. When Chinese upstart DeepSeek shocked stock markets earlier this year, US dominance of the global industry was put in jeopardy.

This year has also seen outflows from US-focused ETFs as international investors have contemplated selling US stocks due to President Donald Trump's tariff policy.

"In June, US equity ETFs fell to their lowest level in 14 months," said Alastair Baillie Strong, Fidelity International's global head of ETFs. A £1.47 billion withdrawal from UCITS ETFs with a North American focus occurred during the month, primarily due to geopolitical events like the US's intervention in the Middle East.

However, some analysts think there will be a lot more in the future.

Rahul Bhushan, Managing Director at ARK Invest Europe, claims that "most businesses have barely begun to exploit AI capabilities, despite the fact that they are developing exponentially." "There is a huge opportunity being created by this discrepancy between what is feasible and what has been implemented.

According to Bhushan, the cost of implementing AI is also decreasing. "History shows that adoption eventually inflects upward once transformative tech gets cheap and ubiquitous," he says. "As the present reluctance gives way to pressure from competitors, we anticipate a wave of enterprise AI adoption in the coming years (think 20252027).

Choosing the eventual winners is the difficult part of seizing this opportunity. "Today's leading companies may not be tomorrow's leaders," Bhushan says.

Investing in AI companies through an exchange-traded fund (ETF) spreads your bets and increases the likelihood that you will keep the eventual winners in your portfolio.

Which AI ETF types are available?

When choosing an ETF, the first consideration is whether to be active or passive. Although actively-managed exchange-traded funds (ETFs) typically have higher fees than their passive counterparts, they provide the opportunity to outperform the market through the prudent trading of their portfolio manager. Active management may result in disproportionate returns, but this is not a given (in fact, some research indicates that it tends to underperform rather than outperform).

Bhushan asserts that "active managers aren't bound by an index's rules." By choosing businesses they think have the best chance of expanding within the AI ecosystem, they are able to concentrate on a portfolio of best ideas with a high degree of conviction.

There is no guarantee that all passive ETFs are created equal. Their returns can be significantly impacted by the benchmark index's selection and rebalancing strategy.

The degree to which an ETF is a true representation of its declared goalin this case, exposure to artificial intelligenceis also influenced by the index construction.

Chief investment officer Ben Seager-Scott of Forvis Mazars says, "If it is too broad, you can just end up with a lot of generalist stocks and an index that is more driven by general global trends rather than AI specifically." However, you may wind up with a few obscure names that carry a high concentration risk and might not ultimately benefit from the technology if the index rules are overly restrictive.

These four AI ETFs serve as an example of how differences can exist even amongst four ETFs that invest in the same theme.

AIQU, which shows returns since listing on September 12, 2024, is the only item whose price has changed over the past 12 months to July 14, 2025. ().

Let's examine each ETF's advantages and disadvantages and see what a portfolio of investors might benefit from it.

1. INTL: exposure to specific AI

The NASDAQ CTA Artificial Intelligence Index is tracked by the WisdomTree Artificial Intelligence UCITS ETF (LON:INTL).

Based on the degree of relevance, this index selects 15 companies (reviewed twice a year) from each of the three categories (AI enablers, engagers, and enhancers) from a large universe of stocks. Because of this, its holdings are highly relevant to the AI theme.

As of July 14, INTL's top three holdings are Advanced Micro Devices, Nvidia, and SK Hynix, all of which are semiconductor companies essential to the development of the hardware that drives AI businesses.

2. AIAI: rebalancing every quarter

Tracking the ROBO Global Artificial Intelligence Index is the LandG Artificial Intelligence UCITS ETF (LON:AIAI). Similar to its Nasdaq counterpart, this index assigns weights to its constituents according to how pertinent they are to the AI theme.

But because it rebalances every three months, twice as many constituent stocks are being bought and sold. Regular rebalancing is popular among investors because it essentially automatically sells high and buys low: stocks that have outperformed over the quarter will be sold, and those that have underperformed will be purchased, assuming no change in the relative relevance of AI.

This makes AIAI an intriguing alternative for investors who recognize the benefits of a quarterly rebalancing strategy, even though it isn't for everyone (many investors favor strategies that allow outperformers to continue to run their course before taking profits).

3. AIQU: extensive diversification

Since its launch on September 12th, the Global X Artificial Intelligence UCITS ETF (LON:AIQU), the newest of these four funds, has trailed AIAI and ARKIs in price gains, but it has outpaced INTLs by 19 points and 4 percent.

The Indxx Artificial Intelligence Index, its benchmark index, employs a modified market cap-weighted methodology that rebalances twice a year and caps individual holdings at 3 percent.

Because it limits the gains from individual outperformers, this low cap may hinder performance, but it may also attract investors who are concerned about megacap concentration.

Magnificent Seven stocks make up a very small percentage of its top holdings. Only Microsoft, Nvidia, and Meta are in the top ten as of this writing, and none are in the top five. Smaller businesses like Chinese tech giant Tencent and Palantir, the top holding at the time of writing, occupy those spaces.

Thus, it is a good option for AI investors who wish to diversify their holdings and move away from the major US megacaps.

4. ARKI: AI that is actively managed

Active management's (often unrealized) promise is best illustrated by the ARK Artificial Intelligence & Robotics UCITS ETF (LON:ARKI).

Despite only going public in April, the ETF has already outperformed its three passive rivals, expanding by more than 60% in the past 12 months. When the fund's returns are more than twice as high as those of the competition, investors won't mind paying an additional 35 basis points in fees, though there is obviously no assurance that this will be the case in the long term.

Investors should anticipate early-stage and obscure companies in this ETF, like warehouse robotics company Symbotic, which has a market cap of only £28 billion, thanks to the stock selection led by ARKs CIO and founder Cathie Wood.

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