The best funds to profit from artificial intelligence (and the ones that shun it)
One of the biggest investment themes of 2024 is undoubtedly artificial intelligence (AI).
With AI predicted to revolutionise the global economy, investors are eager to identify the winners and the losers of this transformative technology.
The good news is that most investors already stand to benefit from the AI boom through the “Magnificent Seven”.
Jason Hollands, of the stockbroker Bestinvest, said: “Investors with a bog standard US tracker fund or global fund are already heavily exposed to the theme, given the Magnificent Seven account for over 26pc of the S&P 500 and over 19pc of the MSCI World Index.”
So far, these firms – which include Alphabet (Google’s parent company), Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla – have been the biggest share price winners of the hype, returning collectively 107pc last year.
There is a strong argument that companies with the deepest pockets and vast amounts of data – like Alphabet and Microsoft – may be the best placed to invest in and therefore profit from AI.
But more adventurous investors may be well-rewarded for looking further afield.
Goldman Sachs, in its outlook for 2024, said: “We see a disconnect between where most investors are positioned and the most compelling potential opportunities.
“Investors who look to complement their existing exposure to mega-cap US technology companies with allocations to other, often less well-known, technology firms, may be able to access secular winners that are relatively underappreciated by the broader market.”
Here, we look at the funds seeking to profit from the AI boom, as well as broader technology funds and those invested in companies that could benefit from the growth of machine learning.
The best funds to profit from AI
A number of specialist funds focus on companies closely linked with artificial intelligence – be it companies that are involved in developing it, or plugging it into new tech solutions.
The Polar Capital Artificial Intelligence fund invests in the main players including Microsoft and Amazon, but also Advanced Micro Devices, a semiconductor company, and RELX, an analytics firm.
However, it also comes with an annual charge of 0.9pc, making it more expensive than the passive funds out there.
“Examples of AI-themed funds are passive options, such as the Legal & General Artificial Intelligence UCITs ETF,” Mr Hollands said.
“This tracks the 62 constituents of the Robo Global Artificial Intelligence Index, and the Global X Robotics & Artificial Intelligence UCITS ETF, which combines two heavily intertwined themes: automation and AI.”
Investment trusts with exposure to technology
The main beneficiaries of AI will not just be the companies developing the software, but also those hardware producers and those with products that could be enhanced by machine learning.
“In the Great American Gold Rush, the people who sold picks and shovels – as well as those who ran bars, stores and guest houses – made a lot more money than the average prospector,” Mr Hollands said. “This could turn out to be the case for AI as well; big companies may end up better monetising this technological development than edgy software specialists.”
A good example here is Nvidia, which has seen its market value rocket to $1.8tn because of soaring demand for its microchips which power artificial intelligence systems.
For this reason some investors may want to consider looking at broader technology-focused funds, including Polar Capital Global Technology.
Rob Burgeman, of RBC Brewin Dolphin, said: “Ben Rogoff at Polar Capital Global Technology has been a passionate advocate of AI for some time, and his fund has a large exposure to this theme.”
Another is Allianz Technology Trust – which has exposure not just to the obvious mega-caps but also Monolithic Power Systems, a provider of power management solutions, and Broadcom, a semiconductor manufacturer.
In addition, Mr Burgeman tips Pictet Robotics, whose top holdings include Alphabet, Salesforce and Synopsis, along with industrial companies like Siemens.
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The funds for AI agnostics
While there has been no shortage of fund managers rushing to pick firms on the new frontier, others have taken a more ambivalent view.
Writing in his annual letter to investors at the start of this year, Fundsmith Equity manager Terry Smith said he will “suspend judgement” on who will emerge as a winner in AI.
The star fund manager said: “The adoption of AI may lead to a situation where everyone has it, so no one has any advantage.”
Another potential fund for AI agnostics is Nick Train’s Lindsell Train Global Equity Fund. While a number of its stocks could benefit from AI, Mr Burgeman pointed out is unlikely to invest in the theme directly, “preferring to get its exposure through core companies such as London Stock Exchange Group, Mondelez International, RELX and Heineken”.
He continued: “Schroder Global Recovery too has a very disciplined approach to its portfolio, with companies having to tick their boxes on quality and undervaluation to be included.
“Here, the top holdings include Stanley Black & Decker, Citigroup, Royal Bank of Scotland and Intel. Interestingly a lot of these companies too could benefit from advances in AI technology to improve their businesses.”
