May 24, 2023
AI Intrigues ETF Managers as Both Investment and Tool
(Bloomberg) -- Artificial intelligence is inculcating throughout the almost $7 trillion US exchange-traded fund industry, both as technology for managing funds and as a new frontier for investment.
“It feels fresh to me and maybe just because there’s not as much out there,” Jillian DelSignore, managing director and head of strategic growth and solutions at FLX Networks, said in an interview at this week’s Inside ETFs conference in Hollywood, Florida. “The ETF industry is the corner of asset management where innovation goes to thrive and it is where innovation is taking place.”
The 14 US-listed equity ETFs with “artificial intelligence” in their fund descriptions tracked by Bloomberg have pulled in cash every month this year, a total of $338 million. Almost half of those inflows went to the $1.9 billion Global X Robotics & Artificial Intelligence ETF (BOTZ), the largest AI-focused ETF.
One AI-related fund launched in the US in 2023, the Roundhill Generative AI & Technology ETF (ticker CHAT). The actively-managed fund will invest mostly in companies that derive portions of their revenue or profit from generative AI. Two more were filed, according to a database tracked by Bloomberg Intelligence’s Henry Jim.
While still a relatively small sector, AI — loosely defined as problem solving using computers and big datasets — has replaced cryptocurrencies as the topic of the moment for the thousands of issuers, index providers and advisers who attended the Inside ETFs conference.
“I don’t need another crypto session,” Matthew Tuttle, chief executive officer of Tuttle Capital Management, said. “Crypto was last year’s thing. This year everyone wants to talk about AI.”
Hype around AI has soared since the launch of OpenAI Inc.’s ChatGPT last year, with investors betting on the companies that they believe will benefit.
Conference attendees said more clarity is needed on what AI investing actually means. For some, it’s utilizing the technology, while for others, it’s investing in AI-related companies.
“There is a very big difference between those two things,” Phil McInnis, chief investment strategist at Avantis Investors, said. “That’s where you draw that line of what is artificial intelligence versus what is something that is more quantitative.”
For Noel Archard, global head of ETFs and portfolio solutions at AllianceBernstein, the field of AI has involved an evolution that started roughly two decades ago when his firm incorporated quantitative techniques.
At first, it was used for “operational” purposes, he said in an interview, until “it became something that was used for an alpha purpose in some way.”
Along with AI, a theme that ran through the conference was how to manage and represent a diversifying client base.
“Whether you are a team of all-males or not is going to matter to the clients that you’re sitting in front of,” Citigroup Managing Director Naz Vahid said in a panel discussion. “They want to make sure that we come in with a diverse group of people and they’re not looking for a token — somebody to come in that meeting and sit there.”
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