Playing AI: Active or Passive?

Playing AI: Active or Passive?

In some tech geek circles it could be sacrilegious to even suggest that humans should be managing an AI themed investment product!

But Blackrock has just launched iShares A.I. Innovation and Tech Active ETF (BAI), which can invest in AI and tech stocks of all sizes.

Its top ten holdings include five familiar Nasdaq 100 stalwarts: Nvidia, Microsoft, Meta, Broadcom, Amazon, though there are also Oracle, Taiwan Semiconductor, Astera Labs, Coherent Corp and Service Now.

AI platform Astera has a market cap of 11 billion and optical/semiconductor maker Coherent is worth 15 billion, in the mid cap range for US equities.

Blackrock also has a passive product, iShares Future AI & Tech ETF (ARTY) with 62 holdings on its website. Its top ten contain only three of the same names as BAI: Nvidia, Broadcom and Meta, though the positions are sized smaller. It also owns AMD, Super Micro Computer, Palantir, Crowdstrike, Arista, Intel and IBM. Of those Arista is the only one we can see in BAI’s list of 36 holdings on its website. BAI is clearly an actively managed product, running a more concentrated book and doing something different from an AI index tracker.

BAI normally costs 0.68% but a fee waiver reduces this to 0.55% until June 2026, which is only 8 basis points more than ARTY’s 0.47%. Therefore, the bar is quite low for the active managers to outperform, and their longer-term track record suggests that they could easily clear this hurdle.

BAI is managed by Tony Kim, Head of the Global Technology Team within the Fundamental Equities division of BlackRock's Portfolio Management Group, and Reid Menge, Portfolio Manager and Managing Director of Fundamental Equities in the Global Technology Team.

Kim has been with BlackRock since 2013 and Menge since 2014. They manage the Global Technology fund, which has made 587%, beating its benchmark MSCI ACWI Information Technology 10/40 Index, made 579%, over 10 years including the tenure of both managers. Though the Global technology fund does not have exactly the same mandate as BAI, the product has outperformed by an average just under 1% per year, which is impressive when the majority of active managers do not beat their benchmark.