Retailing, Banking, Betting, Ticketing, Drug Testing…
The big picture forecast is that AI and Gen AI could generate more productivity and economic growth than the internet or the personal computer. It remains to be seen which parts of the value chain capture most of the value creation. Clearly, investors have a lot of confidence in the MAG7 mega cap US tech names, and this is reflected in their valuations above the market average. But is it possible that some less obvious firms could become big beneficiaries of AI?
A new AI themed ETF, Alger AI Adopters and Enablers, focuses on “adopters” and “enablers”, at either ends of the supply chain around AI.
The holdings list as of April 5 did include all 7 of the MAG 7: Amazon, Alphabet, Apple, Meta, Microsoft, Nvidia and Tesla. These are the AI “enablers” – machinery, hardware, software and services.
It is the AI “adopters” that distinguish this product from other AI-themed ETFs. The largest US supermarket chain, Walmart, does not often get tagged with AI, nor do banks Citigroup or JP Morgan, energy group Constellation Energy, sports betting group DraftKings, ticketing group Live Nation Entertainment, or clinical genetic testing group Natera. But Alger’s fundamental research has identified ways in which these firms are harnessing the power of AI.
The ETF is managed by Patrick Kelly, who is Head of the Alger Capital Appreciation and Spectra strategies at Alger, part of Fred Alger Asset Management, which runs $25.7 billion in growth equity. In an interview on the Alger website, he argues that technology is touching every company: “Every company is having to become a technology company to some extent. Companies are having to digitally transform themselves to remain relevant and competitive within their respective industries. Historically, retailers invested very little in technology and that is now changing”.
It appears to be an active, and fully transparent ETF, rather than one based on an index. This ETF is launched parallel to a mutual fund managing the same strategy, and both access routes have the same total expense ratio, of 0.55%. That is somewhat unusual – other asset managers have been converting mutual funds into ETFs, often with lower fees and expense ratios.