Allan Lane, AlgoChain

WisdomTree checks in with Mission Control


This week's column from Algo-Chain's Allan Lane takes a peek into artificial intelligence, examining WisdomTree's Artificial Intelligence UCITS ETF…

It has been three years since Lee Se-dol, the South Korean Go champion, lost out in a five-game challenge against the London based artificial intelligence firm Google DeepMind. While many of us might equate this to the occasion when IBM’s Deep Blue supercomputer beat the chess grandmaster Gary Kasparov in 1997, there is no comparison between the impact of these two stories as best seen through the compelling documentary ‘AlphaGo’ available via Netflix.

It transpires that for the powerbrokers of Asia, or should I say China, this was their ‘Man-on-the-Moon Moment’ as explained in detail in Kai-Fu Lee’s 2018 book, AI Superpowers. In the same way as the US felt usurped when the Russian cosmonaut Uri Gagarin became the first person in space, the success of Deepmind played on the psyche of the Chinese. From Beijing it was strategically decided that China would become the dominant player in the AI global arms race. 

Fast forward to 2019 and this next phase in mankind’s quest to bring on the next post-industrial revolution has already given rise to the launch of a number of AI themed ETFs. Under the microscope today is WisdomTree’s Artificial Intelligence UCITS ETF listed on the London Stock Exchange at the back end of last year with ticker WTAI, denominated in USD and with an annual management fee of 0.4 per cent.

I’m happy to accept these products deserved the accolade that they are the latest fad, but what a fad it is. This fund looks to track the Nasdaq CTA Artificial Intelligence NTR Index, which currently comprises 52 stocks of global companies whose revenues are attributable to AI products and services. Nasdaq tends to view the target universe as firms that can be categorised as either Enhancers, Enablers or Engagers, but more generally one can see issues with the classification going forward.

Whether the short-term share price action can persist over much longer investment horizons is anyone’s guess, I suspect not, but if your portfolio is looking for an allocation into growth stocks, then this ETF is well worth taking a look at. At the time of writing, the fund delivered a somewhat punchy year-to-date return of 25.73 per cent, but let’s not forget during that period the S&P 500 hasn’t done so badly either, which, according to Bloomberg, returned 14.56 per cent.

As an ETF that is tracking what clearly must be a high beta index, one can be sure that if this index tracker is itself quite risky (it has a risk rating of six on a scale of one to seven), the risk rating of the individual stocks themselves must be even more so. Elsewhere I have often commentated that in the mostly passive world of ETFs, ETF providers should be seen as service providers rather than investment managers, and none more so than when they are delivering very niche exposures like the one on display here. Game on.

 
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