Investment funds to bet on artificial intelligence

The European Union approves the world's first artificial intelligence (AI) law.” This has been one of the big headlines of recent weeks. There is practically no day in which AI is not in the news. Probably this Christmas season, this technology has been present in many of the most heated family conversations. As Liz Centoni, Cisco's Chief Strategy Officer and General Manager of Applications, says, “It has become both a catalyst and a canvas for the future. It is already in our homes, our cars, our offices and our pockets.” It is also beginning to be in the spotlight of investors; even beyond the so-called magnificent seven, namely: Apple, Microsoft, Nvidia, Amazon, Meta (Facebook), Tesla and Alphabet (Google). Financial vehicles linked to AI begin to proliferate; either because they invest in the companies in the sector themselves (or in industries affected by them); well because they use it for their wealth management. In general, these are investment funds or ETFs, whose evolution this year, in terms of profitability, is more than positive, with revaluations in many cases exceeding 40% (although it must be remembered that, in 2022, the losses of that amount were common). The list of the main products by type is as follows (in alphabetical order).

On the one hand, there are the investment funds: Allianz Global Artificial Intelligence, Dws Artificial Intelligence, Echiquier Artificial Intelligence, Thematics AI & Robotics Fund (Natixis IM), Oddo Bhf Artificial Intelligence, Polar Artificial Intelligence and Vontobel Fund-Vescore Artificial Intelligence Multi Asset . In general, all of them are global equity funds that not only invest in companies that develop AI, but also in others that benefit precisely from the development of AI, focusing mainly on the health, energy, environment and automotive sectors. To a greater or lesser extent, these funds also use AI itself as a complement – the fundamental analysis of companies continues to be decisive – to be able to establish the correlation that exists between different variables and thus be able to refine their management models.

On the other hand, we find ETFs (Exchange-Traded Funds, or listed funds in Spanish, linked to different AI and technology stock indices): Global X Robotics & Artificial Intelligence, L&G Artificial Intelligence Ucits ETF, iShares Automation & Robotics, WisdomTree Artificial Intelligence Ucit ETF, Xtrackers Artificial Intelligence & Big Data Ucits ETF and Xtrackers Future Mobility Ucits ETF. The point is that before launching into the world of investing in AI, experts who specialize in this technology make the following recommendations.

• Long-term investment and risk of loss. As Brice Prunas, manager of the Oddo Bhf Artificial Intelligence fund, explains, “given that artificial intelligence is a long-term secular trend shaping the entire economy, investors must be willing and able to invest for the long term.” From his point of view, the technology is just the tip of the AI ​​iceberg. In his opinion, “we are on the eve of a true revolution, since the generation of content by an AI (also known as “generative AI”, of which ChatGPT is the most famous example, although not the only one) opens the doors to the mass adoption of AI, since it is no longer necessary to be a geek to interact with an AI.” According to their analysis, companies in content-based industries (e.g., marketing agencies, movie studios, etc.) and sectors that have generated very large data sets, such as healthcare or finance, are poised to adopt the AI ​​revolution quite quickly, if not already the case. In the future, hence the importance of deadlines, “AI will go much further: companies in practically all sectors could be forced to integrate Generative AI into their business processes in an accelerated manner, to remain competitive.” Prunas insists that this type of funds “presents a risk of capital loss, a variable income risk and a model risk.”
• Pay attention to volatility. For Jesús Ruiz de las Peñas, director of Business Development at Iberia and spokesperson for AI issues at Allianz, these funds are not suitable for all investors — “if the horizon is three to six months, it is better to abstain,” he says. —, since they focus on stocks, which even have a higher level of volatility than conventional stocks, standing around 30%. All in all, from his point of view, the best time to invest in any trend is when that theme begins, and this moment is now.” Tobias Rommel, Portfolio Manager of DWS Invest Artificial Intelligence, insists on this idea, pointing out that “fluctuations are quite normal. With these types of companies, most of the value creation is several years in the future. If interest rates rise, as they did last year, growth companies will be hurt as they tend to be more expensive than the broader stock market. On the contrary, if interest rates fall again, their valuations will be favored.”
• Pay attention to the ratings. Vontobel is clear that enthusiasm for companies that can benefit from generative AI must be accompanied by strict valuation discipline. In his opinion, “there is a difference regarding the certainty of achieving the estimated increase in profits driven by AI for each company. “It’s about giving companies credit for what is very likely to happen, not just for what is plausible.” For Jesús Ruiz de las Peñas, from Allianz, the destination of the investments must be carefully selected because a kind of “societal Darwinism” will occur whereby “only the companies that best adapt to change will survive.” However, he believes that at the current time there is no bubble in valuation and that “there is no similarity with the technological boom of the 2000s, when 90% of companies lost money, while now that percentage is 10% and, Furthermore, in most cases, without debt.”
• The importance of periodic contributions. The best investment strategy is, in the opinion of Tobias Rommel of DWS, to establish a savings plan in which a fixed amount would be invested regularly, over a longer period of time, “because then one could benefit from market fluctuations of values ​​thanks to the average cost effect”.
• Certified financial products. As Cisco points out in its latest report on AI predictions for 2024, there may be an increased risk of scams and fraud. Consumers and businesses will face increased cyber threats from AI-enabled misinformation, scams and fraud, driving cooperation to strengthen cybersecurity and digital literacy. “Protecting ourselves against cloned voices and videos, deepfakes, bots and malicious content will require greater investments in advanced technologies and algorithms that can detect and mitigate these risks,” they explain.

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