Are AI ETFs worth the hype?

investmentnews.com:

To say there has been hype around AI is an understatement, and partially for that reason, advisors caution investors against too much exposure to the roster of thematic ETFs focused on it.

Currently, it is a small but growing area of product development. There are more than a dozen U.S. exchange-traded funds that purport to focus on some aspects of artificial intelligence, representing about $5 billion in assets, according to data from Morningstar.

More are on the way. Late in December, Alger filed with the Securities and Exchange Commission for an artificial intelligence ETF. TCW, which has had a mutual fund focused on AI since 2017, recently filed to reorganize it in the form of an ETF.

“It’s kind of hard to figure out what exactly is an AI ETF. That’s one of the big problems for issuers,” said Bryan Armour, director of passive strategies research at Morningstar. “It’s hard to nail down what is AI and which companies are exposed to AI – and that’s led to variable portfolios.”

When the first ETFs in that category appeared beginning in 2016, the focus was generally on robotics, Armour noted. At $2.4 billion, the Global X Robotics and Artificial Intelligence ETF was not only the first, but it remains the biggest.

Overall, “they haven’t really taken off” as a category, he said. Last year, though, with so much attention to chatbots and generative AI – not to mention money backing them – investors showed more interest, with the ETF category raking in $2.2 billion. At least six ETFs in the category launched in 2018, and most started after 2020, according to data from Morningstar Direct.

There are significant differences in the AI ETFs on the market. While they differ considerably from wider tech-focused ETFs, some invest