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- ChatGPT is the latest tech breakthrough in the AI sector, estimated to grow to $1.6 trillion by 2030
- ETFs offer options for investors to get exposure to growing AI sector globally including major players
- ChatGPT tips on how investors can add AI to their investment portfolios from stocks to ETFs
Want to invest in ChatGPT? Developed by US artificial intelligence (AI) company OpenAI, ChatGPT is estimated to have reached 100 million monthly active users in January, just two months after its November 2022 launch.
ChatGPT is latest technological breakthrough in what has been dubbed “generative AI”, with the chatbot becoming the fastest growing consumer application in history, according to a UBS study, with its popularity surprising even execs at OpenAI.
“I’ll admit that I was on the side of, like, I don’t know if this is going to work,” OpenAI co-founder and president Greg Brockman told Fortune.
“This was definitely surprising,” OpenAI’s chief technology officer Mira Murati said.
Microsoft-backed OpenAI in March released GPT-4, updating ChatGPT capabilities even more.
The AI sector’s value was estimated at US$119.78 billion in 2022 and is expected to grow to ~$1.6 trillion by 2030 with a compound annual growth rate of 38.1% from 2022 to 2030.
According to Goldman Sachs research, breakthroughs in generative artificial intelligence has the potential to bring about sweeping changes to the global economy.
Goldman Sachs economists Joseph Briggs and Devesh Kodnani write in their report that as tools using advances in natural language processing work their way into businesses and society, they could drive a 7% (or almost $7 trillion) increase in global GDP and lift productivity growth by 1.5 percentage points over a 10-year period.
“Despite significant uncertainty around the potential for generative AI, its ability to generate content that is indistinguishable from human-created output and to break down communication barriers between humans and machines reflects a major advancement with potentially large macroeconomic effects,” they wrote.
OpenAi and the Musk factor
OpenAI is a private “AI research and deployment company” with, according to its website, a mission “to ensure that artificial general intelligence — AI systems that are generally smarter than humans — benefits all of humanity”.
Elon Musk, the billionaire boss of electric car maker Tesla, spacecraft and satellite operator SpaceX along with Twitter CEO, was also a co-founder of OpenAI, which was started as a non-profit in 2015. He stepped down from OpenAI board in 2018. He’s now reportedly working on launching an AI start-up to rival the ChatGPT-maker.
Interestingly Musk was among AI and industry experts who recently called for a six-month pause in developing systems more powerful than OpenAI’s GPT-4, citing potential risks to society.
Growing interest in AI investing
BetaShares director (adviser business) Blair Modica told Stockhead there’s no doubt that technologies like ChatGPT have pushed artificial intelligence into mainstream public consciousness.
“Once the domain of dystopian sci-fi movies, ChatGPT has certainly helped more people understand the power of artificial intelligence and the growing ways it can assist with day-to-day tasks,” he said.
“The growth of artificial intelligence will continue to evolve, which will ultimately have flow on impacts on a range of related sectors like cloud computing and cyber security.”
So just how can investors get exposure to technologies like ChatGPT in their portfolios as well as the impacts that AI will have on the world?
ETFs offer exposure to growing sector
Modica said for investors seeking to position their portfolio to take advantage of the uplift in the adoption of artificial intelligence there are several considerations.
“First of all, it’s our view that investors should maintain a solid portfolio core containing broad exposure to equities, fixed income and other assets using convenient and cost effective ETFs,” he said.
He said in this section of the portfolio, investors wishing to up their exposure to artificial intelligence could consider an allocation to the BetaShares NASDAQ-100 ETF (ASX:NDQ) offering exposure to Microsoft, NVIDIA, and 98 other leading global companies.
“Further, investors can then look to add exposure to artificial intelligence and related megatrends in the satellite component of their portfolio,” Modica said.
To that end, investors could invest in the BetaShares Global Robotics and Artificial Intelligence ETF (ASX:RBTZ) to add more pure play exposure to artificial intelligence companies.
Stockspot senior manager (investments and business initiatives) Marc Jocum told Stockhead there are no pure-play ETFs in Australia that invest solely in generative Artificial Intelligence (AI) technology like ChatGPT.
However, he said there are two options that provide exposure to the growing AI theme including RBTZ and the GlobalX ROBO Global Robotics & Automation ETF (ASX:ROBO).
He said RBTZ is the cheapest ETF in this category charging 0.57% per year (i.e. $57 per year for every $10,000 invested) but does come with slightly higher spreads.
ROBO’s fees are more expensive at 0.69% due to the more active nature of the investment strategy.
“ROBO is the biggest ETF in the category, managing almost $230 million, while RBTZ manages over $162 million,” he said.
“However, ROBO did have the early lead being launched a year prior to RBTZ in 2017, and the latter is slowly catching the former and has taken in more money over the last year.”
Three key difference between RBTZ and ROBO
1. Investment strategy
Jocum said ROBO is more active as it has a highly specialised and experienced index committee that plays a significant role in determining which stocks qualify for inclusion after considering the eligible universe based on revenue generated from robotics and automation.
“RBTZ follows a more traditional rules-based index approach and filters companies that generate a significant portion (i.e. >50%) of their revenue from industries such as industrial robots and AI, with some minor oversight from an index committee,” he said.
“There may be more turnover in ROBO given it rebalances quarterly whereas RBTZ rebalances yearly.”
2. Holdings and exposure
Jocum said from a geographic perspective, ROBO has better diversification to more European and Asian markets, while RBTZ has quite a heavy focus in Japan.
“The way the ETFs weigh their holdings also differs as RBTZ weights its constituents by market capitalisation (i.e. the largest sized companies have the highest weight), while ROBO is equally weighted,” he said.
Jocum said consequently RBTZ is quite concentrated in the top 10 holdings (which account for 67% of the entire ETF), with a larger cap focus, while ROBO has more small and mid-cap names.
“For example NVIDIA makes up 1.5% of ROBO and 8.6% of RBTZ,” he said.
“RBTZ only holds 43 stocks while ROBO is more diverse holding 80.”
He said due to the different investment strategies, there is a small overlap of only ~25% of common holdings.
3. Performance and risk
Jocum said ROBO has outperformed RBTZ since their common inception in 2018, over the last three years returning 9.6% per annum versus 4%.
“Over the past year ROBO has been more defensive, only falling -5.1% while RBTZ has lost -13.9%,” he said.
“During 2022, RBTZ fell by as much as -46% whereas ROBO only fell by -34%.
“RBTZ takes ~10% more risk than ROBO given its concentration.”
ChatGPT advice for investors
We posed the question to ChatGPT of how can investors get exposure to AI technologies like ChatGPT? The response was… thorough.
Proceed with caution
ChatGPT even provided a warning about investing.
Jocum also issued a warning on investing in thematics. He said said overall, thematic ETFs should only make up a small part of an investor’s portfolio, with the majority invested in low-cost simple vanilla ETFs that give broader asset class exposure such as Australian shares, global shares, bonds and gold.
“This is because thematics can easily shoot the lights out of performance like they did in 2020/2021 but can also experience sharp falls too like we saw in 2022.
“It’s generally why we prefer to avoid thematic ETFs.”
TOMORROW: Will ChatGPT and artificial intelligence replace traditional financial advisors?
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.
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