A Diversified Approach to Investing in the AI Sector

Investing in the AI sector has been one of the hottest trends in the stock market this year, with many investors looking to capitalize on the growth potential of this emerging industry. However, some investors may not want to go all-in on AI, preferring a more diversified approach to their investments. For those investors, there are stock picker ETFs that have holdings in AI-focused companies but won’t bet the house on AI.

AI Exposure Boosts ETF Performance

Two such ETFs are the Motley Fool 100 Index ETF (TMFC) and the Goldman Sachs Hedge Industry VIP ETF (GVIP). These passively managed ETFs try to pull investment ideas from stock analysts and hedge fund managers, respectively, and both have at least some holdings in the AI sector. This makes them potentially a great ETF pick for those who don’t want to go all-in on the AI sector.

GVIP tracks an index that covers the most popular stocks with fundamentally driven hedge funds, according to its prospectus. Its success in 2023 could be attributed at least in part to its top holdings in the AI sector. Those include NVIDIA Corporation, Broadcom Inc., and Advanced Micro Devices, Inc. NVIDIA Corporation’s stock, particularly, has been on a tear recently with year-to-date gains above 165%. GVIP has returned more than 18% so far in 2023, while the broad Vanguard Total Stock Market ETF (VTI) is up roughly 12%.

TMFC, which tracks an index that represents U.S. stocks recommended in the Motley Fool’s newsletters by its analysts, has also invested in AI-driven companies such as NVIDIA Corp. and has seen significant success in 2023. TMFC has delivered a YTD return of 28.21%, higher than GVIP’s return and that of VTI.

A Diversified Approach

The AI sector is expected to grow significantly in the coming years, with many experts predicting that it will become one of the most important industries in the world. As such, investing in ETFs that include AI-focused companies could prove to be a wise investment decision.

However, investing in the AI sector can be risky, as it is still an emerging industry with many unknowns. By investing in stock picker ETFs like TMFC and GVIP, investors can gain exposure to the space while also diversifying their portfolios. These ETFs have holdings in a range of companies, not just those focused on AI, which can help to mitigate risk.