If you’re interested in artificial intelligence (AI) but aren’t sure how to start investing, a thematic exchange-traded fund (ETF) might be the answer.
These ETFs make it easy because they do the stock picking for you, following a set index or the fund manager’s research. A good example is the Global X Robotics & Artificial Intelligence ETF (BOTZ -1.19%).
If you’re thinking about adding this ETF to your investment portfolio, this article will explain how it works, what it holds, and the risks you should consider.
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What is BOTZ?
What is BOTZ?
BOTZ is a thematic ETF, which means it targets specific trends or industries narrower than broad sector ETFs like those for technology or health.
Specifically, BOTZ focuses on companies involved in AI and robotics. It’s a passive ETF that replicates the holdings of the Indxx Global Robotics & Artificial Intelligence Thematic Index.
This benchmark selects stocks from companies expected to benefit from the increased adoption and utilization of robotics and AI.
It applies several criteria: Companies must be domiciled in developed markets, have a market cap of at least $300 million, and meet minimum trading volumes and free float requirements.
The index focuses on four sub-themes: Industrial Robots and Automation, Unmanned Vehicles and Drones, Non-industrial Robotics, and Artificial Intelligence.
Only companies that derive more than 50% of their revenue from these areas or have their primary business in these segments are considered pure-play robotics and AI companies and are eligible for inclusion.
The final portfolio is formed from the top pure-play robotics and AI companies by market capitalization, up to a total of 100 holdings.
The index uses a modified market-cap weighting scheme at reconstitution, with a single stock cap of 8% and an aggregate cap of 40% for all components weighing more than 5%. All other stocks are capped at 4.5%.
How to invest
How to buy BOTZ
To buy BOTZ (or any other ETF), follow these steps to ensure a smooth transaction:
- Search for BOTZ: Enter “BOTZ” in the search field of your brokerage app. This is the ticker symbol for the ETF, and it will bring up the trading page for this specific fund.
- Decide on the number of shares: Think about how much you want to invest and calculate how many shares that equates to, based on the current share price of BOTZ.
- Choose an Order Type:
- Market Order: If you’re okay with buying at the current market price, select this option. Your order will execute at the best available price.
- Limit Order: If you want to specify the maximum price you’re willing to pay, choose a limit order. This helps manage costs in volatile markets.
4. Place Your Order: Review the details of your order to ensure everything is correct, then submit it. Your order will fill at your specified price or better if you chose a limit order, or at the current market price for a market order.
Holdings of BOTZ
Holdings of BOTZ
BOTZ currently manages a portfolio of 46 holdings with an average market capitalization of $78 billion.
The ETF is heavily concentrated in the information technology sector, which makes up 46.9% of its assets, followed by industrials at 34.1% and healthcare at 15.2%.
Geographically, the United States represents the largest share at 48.3%, with Japan at 30.1% and Switzerland at 12.0%.
Among its notable top holdings are Nvidia Corp (NVDA -0.08%), a leading player in graphics processing units (GPUs) crucial for AI computations, and Intuitive Surgical (ISRG -0.26%), renowned for its robotic-assisted surgical systems, which exemplify the integration of robotics in healthcare.
Should I invest?
Should I invest in BOTZ?
When considering an investment in BOTZ, it’s crucial to determine if you specifically want to overweight in AI and robotics.
Although broad market indexes like the S&P 500 already include major AI and robotics firms, BOTZ focuses intensely on this sector.
Decide whether the selection criteria of the BOTZ index align with your investment philosophy.
This means evaluating if the index’s approach to selecting companies — those that derive significant revenue from AI and robotics — truly captures the leaders in this innovative field and if it’s likely to continue doing so effectively.
If you believe in the potential of AI and robotics and agree with how BOTZ targets these companies, the next step is to consider how much of your portfolio should be allocated to this ETF.
Given its thematic focus, BOTZ is ideally positioned as a satellite holding rather than a core investment. This allows you to benefit from its specialized exposure while maintaining a diversified portfolio.
Decide on the percentage of your total investment that you’re comfortable dedicating to this theme, considering both the growth potential and the risks of concentrating on a specific theme.
Dividends
Does BOTZ pay a dividend?
Currently, BOTZ does not distribute dividends, as indicated by its 30-day SEC yield of -0.22% as of October 10.
This negative yield can occur when the expenses or liabilities of the ETF exceed any income generated from its holdings, which is not uncommon in expensive thematic ETFs focused on growth sectors like AI and robotics.
If BOTZ were to pay dividends, you could expect them to be distributed on a semiannual basis.
However, given its current yield status and the focus on growth industries that typically reinvest profits rather than pay dividends, BOTZ may not be the right choice if you’re specifically seeking a dividend-paying ETF.
Expense Ratio
A percentage of mutual fund or ETF assets deducted annually to cover management, operational, and administrative costs.
Expense ratio
What is BOTZ’s expense ratio?
As with many thematic ETFs, BOTZ carries a relatively high expense ratio, currently set at 0.68%. For an investment of $10,000 in BOTZ, this expense ratio translates to an annual cost of $68.
It’s important to remember that you do not pay this fee directly out of your pocket; rather, it is deducted from the fund’s assets, which affects the net returns of your investment indirectly.
Historical performance
Historical performance of BOTZ
Here’s a look at how both the market price and net asset value (NAV) of BOTZ have performed over trailing one, three, and five-year periods.
Figures represent total returns (share price + reinvested dividends, if any) and are up to date as of Sept. 30, 2024.
| 1-Year | 3-Year | 5-Year | |
|---|---|---|---|
| BOTZ Market Price | 30.26% | -4.02% | 10.19% |
| BOTZ NAV | 30.29% | -4.05% | 10.56% |
The bottom line on BOTZ
BOTZ suits a very specific investor profile: someone with a high risk tolerance who is bullish on the long-term prospects of AI and robotics. It offers global diversification with a focus on sectors like technology, healthcare, and industrials.
However, potential investors should be aware of the drawbacks associated with BOTZ. Its high expense ratio of 0.68%, concentrated holdings, and lack of consistent dividends make it less suitable as a core portfolio holding.
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FAQ
Investing in BOTZ FAQ
How to buy BOTZ ETF?
Search for the ticker “BOTZ” in your brokerage account, specify the number of shares you want, and choose your order type (market or limit).
Is BOTZ ETF a good investment?
BOTZ may be suitable for investors with a high risk tolerance looking to specifically increase their exposure to AI and robotics, but may not be ideal as a core holding due to its concentration and volatility.
What stocks are in the BOTZ ETF?
BOTZ currently holds 46 stocks, mainly from the United States, Japan, and Switzerland, focusing on sectors like technology, healthcare, and industrials; major holdings include Nvidia and Intuitive Surgical.
How to invest in robotics and artificial intelligence?
You can invest in individual tech sector stocks or opt for thematic ETFs like BOTZ that specialize in robotics and artificial intelligence.