When it comes to thematic investing in fund form, the traditional approach is to deliver exposure to a single theme under one umbrella.
Some exchange-traded funds (ETFs) expand upon that scenario by offering exposure to multiple themes. That strategy isn’t just about convenience. It’s rooted in relevance, too, because some disruptive technologies intersect with each other — for example, artificial intelligence (AI) and robotics.
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Growth investors can access the AI/robotics union with select ETFs, including the Global X Robotics & Artificial Intelligence ETF (NASDAQ: BOTZ). The $3.16 billion fund turned 9 years old in September, which in AI ETF terms is arguably ancient. Still, its approach remains fresh, pertinent, and chock-full of opportunities that could deliver impressive gains over the next several years.
Investors examining this AI ETF through the lens of its multibagger potential should maintain their perspective, as the weighted average market capitalization of its holdings is $521.8 billion, and at the moment, about 11.4% of its weight is in Nvidia(NASDAQ: NVDA). When it conducts its annual rebalancing in March, however, that will likely be cut to 8%, the maximum weight for a component of the fund at that point in its cycle. Those traits imply that it could take several years or more for this market-cap-weighted fund to double or triple in price.
Patience is always a virtue in investing, but the potential is there for this Global X fund to deliver for investors, and much of that potential derives from the AI sector. The fund currently has about 41.7% of its weight in tech stocks, so the theme is front and center. That’s one way of saying investors considering this ETF will want to stay abreast of the pace of AI adoption and the expansion of its use cases.
On that note, the still-evolving technology of agentic AI is expected to be a significant driver of growth, with online shopping representing fertile territory for the long-term adoption of the technology. Figure it this way: If you bought gifts online this holiday season, there’s a fair chance you encountered an AI-powered bot that made product recommendations or showed you ads related to the items you had placed in your digital cart.
Agentic AI is expected to enhance the shopping experience by seeking real-time price comparisons and anticipating needs for repeat orders. “Agentic shoppers” could drive $190 billion to $385 billion in U.S. e-commerce spending by 2030, accounting for 10% to 20% of online retail share, according to a report from Morgan Stanley. If those forecasts are met or exceeded, the Global X ETF is positioned to benefit.
AI is a captivating theme, but robotics shouldn’t be lost in the shuffle, because the growth forecasts for that industry are astounding. Potentially adding to the allure of the Global X ETF as a long-term investment is the expectation that robotics growth will occur on multiple fronts, including collaborative, humanoid, and industrial robots.
Alone, industrial robots underscore the industry’s intersection with other disruptive themes, as these robots are linchpins in aerospace and the production of electric vehicle (EV) batteries and semiconductors. Supporting the case for this ETF’s robotics sleeve is the point that technological advances are driving the cost of industrial robotics adoption lower. It tumbled nearly 25% over the past decade, paving the way for broader adoption.
In what could prove to be another positive for a fund that has about 42% of its portfolio in industrial stocks, the market for humanoid robots is predicted to expand dramatically in the coming decades. Humanoid robots are still a young niche, but Morgan Stanley forecasts the segment will grow to $5 trillion by 2050.
Corporate adopters have compelling reasons to embrace them because these robots will be able to comfortably work alongside humans, freeing up people to work on more important tasks while potentially improving safety in industrial settings.
One of the criticisms frequently lobbed at thematic ETFs is that they are highly concentrated either on the regional or sector levels, or both. However, domestic stocks represent just about 48.1% of this ETF’s portfolio. That’s well below what investors generally find in traditional global ETFs.
This means geographic constraints are limited with this fund, and that’s a good thing, because AI and robotics are global themes. Japan is one of the leaders in both arenas, and it holds a “podium position,” with 26.8% of the portfolio.
Consider that geographic diversification to be the cherry on top of the Global X Robotics & Artificial Intelligence ETF’s strong investment case.
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Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
