Page 22 - Investment Advisor July/August 2023

Cover Story

Artificial intelligence has been in the
works and in use in various forms for
decades, but OpenAI’s ChatGPT launch
in November has brought waves of
attention and forecasts for revolution-
ary change in business and everyday life
through various AI applications.
Technology news site TechTarget
defines AI as “the simulation of human
intelligence processes by machines,
especially computer systems.” While
ChatGPT, a “generative AI” tool that
allows computers to respond to queries
in a human-like way and generate new
content, may be sparking the buzz now,
it’s one in a sea of potential AI prod-
ucts and services that could change the
way people work, shop, study, build, run
businesses and perform research.
“There’s not going to be one AI that
is used. There are so many different “There’s not going to be one AI that
applications,” Bryan Armour, direc- is used. There are so many different
tor of passive strategies research for
North America at Morningstar Research applications. There will be a dramatic
Services, explained in a recent inter-
view. “There will be a dramatic shift shift toward AI that will be felt across
toward AI that will be felt across hun-
dreds of companies, it won’t be like hundreds of companies, it won’t be like
there’s just one.”
Clients — or their advisors — trying there’s just one.”
to figure out how to select an AI ETF
need to consider various points, includ- —Bryan Armour
ing their reasons for investing in the
arena. Even defining what constitutes an AI ETF, as with any sons” for an advisor to invest in AI for a client. “The bad
thematic sector, depends on the criteria applied. reason is because your client badgered you into buying it
for them” because AI is hot and they think they should be
eTF Investing in it, Nadig said.
“There are plenty of options out there for folks that want to If a client is genuinely interested in a theme, he continued,
get access to AI in a package,” ETF expert Dave Nadig, finan- “the first answer should be ‘Great, go use it.’” Investors should
cial futurist at investment data and research firm VettaFi, be paying attention to a space in which they’re truly interested,
explained in an interview. “You should approach it as a theme and that will help them determine which ETF to focus on,
like you would approach any other kind of thematic invest- Nadig explained.
ment, which means it should not be a core holding, this should “A good advisor should then work with that client to help
be a satellite holding. them understand what [it is about AI] that’s exciting to them,”
“You should not be putting 45% of your money in a single he explained. If they’re just chasing headlines, the client per-
thematic ETF that probably owns 30 global stocks or 100 global haps should be in a momentum fund instead, he added.
stocks … It’s a headline theme that you’re trying to get in on the Morningstar, using the framework it applies to all thematic
ground floor of,” as an investor would with clean water, energy ETFs, has identified seven AI ETFs — tech funds with AI in
or cybersecurity, Nadig added. their sub-themes, based on their prospectus filings and mar-
Clients should know why they want to invest in a theme, keting materials.
he said, suggesting “there are good reasons and bad rea- Many funds beyond that group also focus on AI technolo-

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