WisdomTree has become the latest issuer to enter the increasingly competitive thematic equity space with the launch of the WisdomTree Artificial Intelligence UCITS ETF on the London Stock Exchange.
Christopher Gannatti, WisdomTree Head of Research in Europe.
The fund provides exposure to companies globally that stand to gain the most from increasing adoption of artificial intelligence (AI) technology.
The underlying reference for the fund is the Nasdaq CTA Artificial Intelligence Index, a collaboration between exchange operator and index provider Nasdaq and US trade organization, the Consumer Technology Association (CTA).
To be eligible for inclusion in the index a stock must first have a minimum market capitalization of $250 million, a three-month average daily dollar trading volume of $3 million or more, and a free float of at least 20%.
Stocks are then identified as belonging to the AI value chain by analysts at CTA and given an ‘AI Intensity Rating’, a proprietary CTA measure, based on the estimated portion of a company’s revenues attributable to AI, how core AI is to the company’s product offering and positioning, and the market prominence of a company’s AI solutions.
Relevant stocks are then classified into one of the following categories: Enhancers, Enablers and Engagers.
Enhancers are defined as companies who are a prominent force in AI but whose relevant product or service is not currently a core part of their revenue. They include chip manufacturers, and platform and algorithm providers that power the development and running of AI-powered products & services.
Enablers are key players in the AI space, with some of their core products and services enabling AI. They include component manufacturers (including relevant CPUs, GPUs etc.), and platform and algorithm providers that power the development and running of AI processes.
Engagers are companies whose focus is providing AI-powered products & services.
The index methodology then selects the top 15 firms by intensity rating within each category. In circumstances where companies are tied, both are included (hence there are currently 50 constituents in the index, as of 4 December 2018). The Engagers category comprises 50% of the index exposure, while Enablers and Enhancers comprise 40% and 10% respectively. Constituents within each category are equally weighted as of the semi-annual rebalance.
The majority (59.4%) of the index is allocated to stocks listed in the US, followed by firms from Taiwan (12.0%), Japan (7.2%) and Canada (4.2%). As may be expected, over 90% of the total index is dedicated to stocks in the information technology sector.
The ETF comes with a total expense ratio (TER) of 0.40% and is available to trade in US dollars (WTAI LN) or in pound sterling (INTL LN). Both share classes are capitalising, with income reinvested within the portfolio.
Commenting on the launch, Christopher Gannatti, WisdomTree Head of Research in Europe, said, “We are delighted to partner with Nasdaq and CTA, who are experts in AI and technology markets. We have worked together, leveraging our combined expertise, to re-define the AI investment landscape. When investors think of what this can bring to a portfolio, they should be thinking over a long time horizon and about how advances like autonomously driven cars, a digital workforce, mass facial recognition and other applications of intelligent machines could change the world.”
Rafi Aviav, WisdomTree Head of Product Development in Europe, added, “AI is a revolutionary technology and the market for AI products and services is expected to more than triple over the next three years. The fund broadly represents the upstream and mid-stream parts of the AI value chain and so balances diversification with a focused exposure on those parts of the AI value chain that stand to gain the most from growth in the AI market.”
Dave Gedeon, Vice President and Head of Research and Development for Nasdaq Global Indexes, said, “Artificial Intelligence is at an inflection point to drive further economic growth and create new areas of opportunity. The Nasdaq CTA Artificial Intelligence Index serves as an important benchmark for tracking the adoption of AI across a broad range of economic sectors as this influential technology hastens advancements in productivity and capacity.”
WisdomTree’s product follows swiftly on the heels of another pure-play AI ETF, the Amundi Stoxx Global Artificial Intelligence UCITS ETF (GOAI FP) which launched on Euronext Paris in September. GOAI provides exposure to equities listed globally that are closely related to the theme of AI and does so by tracking the Stoxx AI Global Artificial intelligence ADTV5 Index. It has accumulated assets under management of approximately €110 million since launch and comes with a slightly cheaper TER of 0.35%.
The space is becoming increasingly contested with AI-oriented ETFs listed in Europe also offered by LGIM, Lyxor and HANetf/GinsGlobal Funds.