Top 3 ETFs to Gain Exposure to Artificial Intelligence and Robotics Growth Potential

Amid a backdrop of slowing macroeconomic data, the Federal Reserve continues to signal interest rate hikes. Factory orders increased by only 0.9%, compared to an expected 1.1%. Open jobs in March were 9.59 million, below the 9.97 million anticipated. Additionally, the first quarter GDP growth figure of 1.1% was significantly lower than the 2% forecast and previous quarters, indicating a trend of slowing growth. Inflation is also weakening, with the PCE figure standing at 4.2% in March, down from 5.1% in February and 5.4% in January.

Despite these indicators and mounting pressure from politicians, media, and economic figures, the Fed is expected to announce another 0.25% interest rate increase at the end of their two-day meeting this week. However, Powell may imply that there will be no further increases. While an interest rate cut in June is possible if the macroeconomic situation worsens, it's unlikely that Powell will hint at this, and the chance of it actually happening is low.

Fed Chairman Jerome Powell is determined not to follow in the footsteps of Arthur Burns, who was considered one of the worst Fed chairmen due to his inconsistent policy. Instead, Powell aims to emulate Paul Volcker, the chairman who successfully tackled high inflation in the 1970s. It is currently estimated that there will be one interest rate hike this week and a cessation of hikes thereafter, with no rate cut expected until at least early or mid-2024.

Macro: Half of US banks insolvent? Not quite, but close

The recent collapse of several medium-sized banks, including First Republic and Silicon Valley, has raised concerns about the stability of the US banking industry. Researchers from Princeton University suggest that more than half of US banks have assets valued lower than their liabilities, which could lead to a colossal crisis in the event of a run on banks.

However, a temporary situation in which asset values are lower than deposits will not necessarily lead to collapse if no run occurs. This is because the inadequacy is mainly due to a mismatch in interest rates, and assets can still realize their full value if held to maturity.

The researchers examined US bank assets' exposure to rising interest rates and their consequences for financial stability. They found that the market value of assets held by banks is $2.2 trillion lower than their book value, with most assets not hedged with interest derivatives. According to the study, a run on banks could occur due to the amount of uninsured deposits. This scenario played out in the collapse of Silicon Valley Bank.

The researchers' model revealed that if only half of customers want to withdraw their money, almost 190 banks with assets of $300 billion would not be able to meet the demand. This could trigger a snowball effect, leading to further withdrawals and putting additional banks at risk. Their conclusion is that the recent decline in bank asset values greatly increases the vulnerability of the US banking system. It remains to be seen if Powell and the Fed will take these data into account during their current meeting.

Micro: Embrace the AI revolution

Artificial intelligence (AI) has become a global phenomenon in recent weeks, with Microsoft's ChatGPT and other AI tools gaining significant attention. IBM has estimated that thousands of jobs will be replaced by AI in the coming years, leading the company to slow down hiring in fields expected to be affected.

Investing in AI can be challenging, but one option is to invest in ETFs that provide exposure to the field. These ETFs often combine robotics, automation, and AI, offering growth potential in one of the most promising areas today. Three ETFs that offer exposure to artificial intelligence are as follows:

1. GLOBAL X ROBOTICS & ARTIFICIAL INTELLIGENCE ETF (BOTZ) -0.82%: This ETF focuses on companies involved in the development, production, or use of robotics and artificial intelligence technologies. The management fee is 0.68%. The fund has a significant exposure to the United States, with 42.5% of its assets invested in the country, followed by Japan with 29.15% and Switzerland with 9.45%. The ETF holds 38 different stocks, with no single company accounting for more than 8.1% of the assets. Since the beginning of the year, BOTZ has increased by 12.61%. Over the past three and five years, the ETF has underperformed the broader market, but it still represents an opportunity for investors looking for exposure to this rapidly evolving sector.

2. iSHARES ROBOTICS AND ARTIFICIAL INTELLIGENCE MULTISECTOR ETF (IRBO) -0.7%: The iShares Robotics and Artificial Intelligence Multisector ETF seeks to track the investment results of an index composed of developed and emerging market companies involved in robotics and artificial intelligence. The management fee is 0.47%. The fund has 52.85% of its assets invested in the United States, 14.76% in Japan, and 7.61% in China. With a total of 96 holdings, the ETF's largest single holding accounts for only 2.2% of its assets. Since the beginning of the year, IRBO has increased by 14.97%. Over the past three years, the ETF has underperformed the broader market, but it still offers investors the chance to gain exposure to this growing sector.

3. KRANESHARES MSCI ALL CHINA HEALTH CARE INDEX ETF (KURE) -0.8%: Although not strictly focused on artificial intelligence, this ETF gives investors exposure to the Chinese healthcare sector, which includes companies involved in AI-driven medical technology and biotechnology. The management fee is 0.65%. The fund has 100% of its assets invested in China, with 80 different holdings. Since the beginning of the year, KURE has increased by 5.71%. Over the past three years, the ETF has outperformed the broader market, making it an intriguing option for investors interested in the intersection of healthcare and artificial intelligence in China.

Investing in these ETFs provides investors with exposure to the rapidly growing fields of robotics, automation, and artificial intelligence. While it is difficult to predict which companies will emerge as leaders in these industries, investing in a diversified basket of companies through ETFs can help mitigate risks and potentially capture the upside potential of these transformative technologies. It is essential for investors to carefully consider their risk tolerance, investment horizon, and financial goals before investing in these ETFs or any other investment vehicle.