This week's newsletter was written by Ryan Ermey, a senior reporter covering money and investing for CNBC Make It. You can follow him on Twitter@RyanErmey.
Now that ChatGPT has passed exams from law and business schools, coded well enough to be hired at Google and even penned a story for CNBC Make It, you may be convinced that it's only a matter of time before AI takes over the world.
Let's skate past the existential questions and get right to the money one: How do I invest?
One popular way is through a thematic exchange-traded fund. These ETFs invest in a basket of companies centered around a particular theme. It can range from a specific technology or business, such as cloud computing, to something as broad as the shift to working from home.
It's not hard to imagine how one of these funds could benefit your portfolio. After all, there's no shortage of people who made their fortunes by investing early in an emerging technology. And by investing in a group of these stocks rather than trying to pinpoint one, you help mitigate the risk that you're going to choose the proverbial Pets.com instead of Amazon.
Even so, the risks of investing in these funds are very real.
For one thing, diversification within a particular theme won't do you much good if the whole theme takes a hit. Just ask investors who held blockchain-themed ETFs in 2022.
What's more, thematic ETFs tend to charge higher expense ratios than broader-based strategies.
That's why you'd be wise to treat any thematic ETF as a complement to a broadly diversified core portfolio strategy, says Todd Rosenbluth, head of research at research firm VettaFI.
"This should serve as a 'satellite' position or a slice of a broader portfolio. We tend to see investors putting 5% to 10% of their equity allocation toward higher-risk, high-reward thematic ETFs."
If that sounds like a bet you're willing to make, the first step in choosing a thematic fund is determining whether a theme is robust, or if a fund company is merely trying to capture investor dollars by creating a fund around something zeitgeisty, says Kenneth Lamont, senior manager research analyst for passive strategies at Morningstar.
Remember when wearables were the future of tech? People who bought the now-discontinued ETF do. AI feels like it has a chance to be a bigger deal than that, says Lamont.
"Artificial intelligence is a technology that's likely to be extremely disruptive," he says.
From there, make sure you're looking at AI funds that actually invest in AI companies. Some of the ETFs with AI in the name use the robot brain to pick stocks and "can hold just about anything," Rosenbluth says.
If you want to profit from AI, you'll have to pick a fund that invests in AI firms. That means determining what a fund thinks an "AI company" is.
Some funds invest in large, established companies with an AI component to their business, which can include names such as Apple and Amazon. These could be lucrative investments, but they're hardly living and dying on the future of AI.
Other ETFs try to provide more of a "pure play" on AI by investing in firms that derive a certain portion of their past or projected revenue from artificial intelligence.
This is where it's important to pay extra attention to a fund's fees. If the fund's holdings more or less overlap with what you could get from a less-expensive technology stock fund or even a broad index fund, you may be overpaying for that exposure, says Lamont.
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