ETF Edge - Artificial intelligence and the very real job of separating hype from high-quality 6/16/25

Episode Date: June 16, 2025

The AI trade is getting increasingly crowded and it’s getting harder to sift out the next big winners. Well-known tech analyst Dan Ives, who just recently launched an ETF with his own name on the line, tells us how he’s approaching it. Plus, Todd Rosenbluth, Head of Research at Vettafi, discusses how the rest of the ETF industry is slicing AI.     Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge Podcast is sponsored by Invesco QQQ, proud provider of access to innovation for the last 25 years. Invesco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange traded funds, you're in the right place. Every week we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for the investor community. I'm your host, Dominic Chu. Now, will the high-flying artificial intelligence trade soon collide with the very human realities of long-term investing? Here is my conversation with Dan Ives, Global Head of Technology Research at Wedbridge Securities, alongside Todd Rosenbluth, the director of research at Betify.

Let's kick things off, gentlemen, with Dan, and you just launched an AI-focused thematic exchange-traded fund. The ticker is maybe not shockingly, I-V-E-S, Ives, your last name. Your name is literally on the line with this one. So let's talk about why and what exactly is the impetus behind putting an AI-focused thematic ETF on the market. No, great. And look, and it's awesome to be here. Look, I mean, to me, it's really, I wanted a thematic way for investors around the world

to ultimately, you know, invest in the theme. You know, I mean, when I travel around the world, how do you invest in AI? So this is really based on my AII of Sturity Report, understand who are the derivative beneficiaries, whether it's software, chips, consumer, some under the radar, some may be on the autonomous side. And basically, this is a dynamic list. It's a dynamic 30 names. Every quarter we're going to change in terms of someone who come in, who ultimately come out. But, Dom, for me, was really all the work we do to put it thematically in a way.

way that investors, or the retail institutional could invest in this AI theme. Now, it's a concentrated portfolio. It's only 30 names that we're talking about here. Without giving away the secret sauce, because you're a fundamental analyst, you look at certain factors and whatnot, what are the common elements or factors, if you will, that go into why these 30 names at this point? And you mentioned the rebalance. How exactly then do you know, based upon those factors,

whether quantitative or qualitative, what then maybe goes out and what else would then come in? Yeah, it's a great question. I mean, look, we spent all of our time, whether it's here, whether it's Asia, across Europe, understanding what are the technologies driving AI? So whether it's on the chip side, in software, what ultimately, from an engineer perspective, from a customer perspective, who's ultimately driving, who's winning when it comes to the use case, whether it's Pallenteer, is it MongoDB, is it snowflake? then on the consumer side, whether it's, you know, from names like Metter or some of the smaller names, who ultimately could play from a consumer perspective.

So for us, it's really, it's our research. It's what we spend, and my team spends all of our time doing, trying to understand who is driving the use cases, where is the technology going? But most importantly, what are the second, third, fourth beneficiary, then the derivatives of AI? Now, speaking of those orders of differential, those derivative type plays, where are you seeing most of the portfolio drift towards? There's 30 names. Are they mostly the consumer AI names? Are they mostly the hyperscaler types?

Are they mostly the hardware or the software or whatnot? What exactly do you see right now being where the most heat is, so to speak, in those picks? And in terms of the heat, like it obviously started off as chips led by NVIDIA, and of course they continue to be a core top holding, but it's software. In other words, the use cases are going to be driven in software. And that could be from hyperscalors to use case, whether it's Pega, whether it's Pallantir, whether it's Manga, because I actually think right now we're in the software phase. I think software is going to be driving really a lot of the use cases.

And I think we've seen it with Oracle and others, right? because to me, that's really going to be the epicenter of the AI theme over the next six, nine, 12 months in terms of software, but it's trying to understand who within software. Just because they say AI on a conference call doesn't meet them an AI player. Now, Todd, this is an interesting one for a lot of investors out there as well, because this particular fund and these stock picks enter a kind of growingly crowded field in terms of thematic AI play. from your kind of macro perspective looking at the entire ETF market,

just how competitive is it for asset managers and advisors to garner funds into the thematic ETF trade for AI? Or is the market, the TAM, the total addressable market, so big that it doesn't matter how many people enter because the demand is there for amongst investors, whether they're retail or institutional? So we at VETI, we find that advisors are using roughly five, to 10% of their portfolio for more dedicated thematic investing.

So some of the AI trends we're going to see exposure in the triple Q's, the NASDAQ-100, ETF from Invesco and other technology-oriented ETFs. But there are some dedicated AI ETFs, the Robo Global Artificial Intelligence ETF, the ticker is T-HNQ, is a good example of that. It also takes a research-driven index-based approach. It's equally weighted around 50-55 stocks, and it's looking at companies that are both infrastructure and application layers tied to AI. So that's going to cover some of the technology areas that Dan talked about.

But Think, THNQ also is going to have exposure to healthcare and robotics and sensors and things like that. Let's also talk now, Todd, really quickly about the types of fees. It's always a big issue for ETF and fund investors out there. When it comes to this type of investing, It's them, these types of thematic ETFs, that may charge a certain kind of fee structure versus just say buying the triple Q's, the SPY, or anything else with a tech overweight these days, specifically to Mag 7. So when you look at the fee landscape, is there a premium being charged by some of these thematic

ETFs with regard to AI versus just say a tech-focused index fund? Yeah, so thematic ETFs can and we think should be able to charge. a bit of a higher premium than your broad index-based product. You mentioned the triple Q's or a VGT, for example, is a low-cost information technology, ETF. But it's important to go beyond the fees because Dan's Fund Ives and T HNQ and other thematic ETFs tied to artificial intelligence are going to be different. There's going to be devils in the detail with the construction.

And so it's worth looking at what's inside the portfolio, not necessarily, necessarily just the name of the label and the fee. Now, Dan, many of these ETFs thematically or otherwise are market cap-weighted. Is your fund cap-weighted? And if so, that kind of leads you towards certain types of stocks that are out there. So when I say fees and I look at the outperformance that a fund manager would strive to go for, what exactly does your fund or your pick specifically do to garner the kind of outperformance that helps an investor justify the higher than average fees

versus a traditional index one. No, it's great point. Ties, great point. Look, I think for us, it's not just Mag 7. It's not just those first four or five names. It's trying to find who are those other names, whether it's five, ten, 15 of them that may be investors right now. They're not even viewing as AI names.

And we have a lot of those, you know, in there, especially in software, in chips. It's trying to identify names that maybe today, thematically, you don't even consider an AI name. But it's a way that investors could look at the AI theme. And they're not just focused on chips. They're focused on software. Consumer. Like obviously meta being on there is a good example.

Robotics. Like, Aquo is one of the names as a good example because of nuclear. So it's our way, it's the way that we think about it and the way that we work on that theme. But again, those are names. where to me, it's very important to understand there could be a name too, it's not on there, six months from now. If we find that that's a name,

that's become more and more of an AI play, then we'll put them on there. How does your index, Dan, track or sort with regard to the weightings and those particular funds? Are they all equal weight to start at any kind of a rebalance period, or are you weighting them specifically towards a certain type of thing like market cap? Yeah.

Or based upon the fundamental, heft of the idea or how good of an idea it is versus say one to 30. It's a combination. So in other words, the waiting is not just based on Mark Kemp, it's based on, you know, what I view is basically the ones that maybe have more of the power from an AI perspective. That's why you'll see at the top. I mean, if you look at names like Nvidia Pallantier, names that are highest conviction, look, there's also names where maybe they're a high conviction name today.

They stay in the AI, I have sturdy, but they go to the bottom part of the list, depending on what they're doing. And look, and Dom, my whole view here was to make this dynamic, not static. Because around the world, investors always say, how do you play AI? How do you play the theme? Now it's a way all of our research could put it in a way that investors could play this regardless of where they are and who they are. All right.

So now, I'm going to address the both of you guys again. Let's back up and talk about tech investing more broadly in the context of what else has been dominating the markets, which is this rapidly changing. geopolitical landscape. Todd, I'll go to you for this one. We've seen a good amount of volatility around some of the recent developments on the geopolitical front, specifically

when it comes to conflict in the Middle East. It has been jarring for sure, but interestingly enough, not as jarring from a straight quantitatively volatile perspective with regard to the markets, as volatile as the tariffs impact were or was at the end

and beginning of April, kind of into that May period. So what exactly do you attribute this bout of volatility to and is tech a good enough theme to weather this kind of geopolitical risk? So I think investors and advisors in 2025 are getting used to this being a more volatile time period than they were a month ago or two months ago or three months ago. I think they're more accepting of the volatility. but we certainly at the ETF flows level, we're seeing stronger interest in fixed income ETFs,

in short-term fixed-income ETFs, the earn-some income and not take on much risk, and then also we're seeing people buy more broadly diversified ETFs. The Vanguard 500 ETF is on pace to again break the record for net inflows for a year anywhere close before the end of the year. So people are using sell-offs as a buying opportunity, You asked about tech. Tech is the heaviest weighting within a broadly diversified large-cap ETF like Vanguard 500 or others.

So I think many people are having tech and AI as part of a broader portfolio as opposed to leaning in solely onto the technology sector. Hey, Todd, as you look at the landscape for ETFs, there's been a time when some folks, investors out there, both on the retail and the institutional side, have viewed the tech trade or those mega-cap type tech names. as a maybe safe haven, if you can even call it that, but they were relative safe harbors in some stormy conditions. Does the tech trade from that mega cap level still appeal to some investors as a relative safe haven trade, or does it expose itself to even more volatility now because it's run so far so quickly in the past 10 or 15 years? So Dan is going to have more of a valuation call than I am, but we're certainly seeing that investors that gravitated towards tech, you know, in 2020, when we had the COVID sell-off,

technology was the safe haven. That was the lowest risk part of the marketplace. Now we're seeing a flight to safety in the equity markets in some of the more defensive sectors, utilities or consumer staples. So tech is a relative safe haven, or as large cap tech is a relative safe haven, but we are seeing investors want the benefits of diversification with some of those more traditional extensive sectors. Dan, because we broached that topic and we opened the window or door a bit on this, the valuation story. What do you say to folks out there who believe that this tech trade after having the

run that it's had is now not as much of that quote unquote relative safe haven trade because you would have wanted to be there three, five, seven, ten years ago and not necessarily today? Yeah, I mean, look, Don, me and you've talked about this for decades. I mean, my view of tech, if you focus just on valuation, you missed every transformation on tech stock the last 20 years. And I believe the market is still, it is massively underestimating what the growth is going to look like for the AI revolution in tech. So I believe valuation, okay, over the next year, you could say some of these are expensive.

You've got next two, three, four, five years, given our view of autonomous, robotic, that's why I think we're going to be talking about NASDAQ, 20,000, 25. thousand over the coming years. And that's why any type of geopolitical sort of events, we always view as opportunities to own these names cheaper. That's kind of always been our view the last 25 years cover in tech. All right. Now, finally, guys, Todd, I'll go to you for this one first. Some argue that the AI trade really falls into more of that thematic bucket. There's a wide array of thematic ETFs out there for just about anything. If you can think it, there's probably an ETF for it. But how much of one's portfolio should be allocated to themes?

You mentioned just how much in the beginning some advisors are allocating to the thematic trade. But is there any kind of a consensus building that you can see about whether that consensus is either underplaying it or overplaying it? So I think many people feel like they're exposed to the AI thematic trade through larger cap strategies like QQQ. or even SPY. So we think that the approach for AI and the thematic approach is a more dedicated, more targeted exposure. So THNQ is one such example. There's some global X, ETFs, AIQ, that also offer a more targeted exposure. You want to make sure you're not completely overlapping your NASDAQ 100 exposure with your thematic ETF. But yes, to your other question of there's a lot of them,

There's a music ETF, MUSQ. There's some video games, ETS that are out there. There's lots of different ways to play thematic strategies. You just want to make sure you're not double counting your portfolio. Okay. And Dan, the AI trade thematically also has a number of sub-themes, if you want to look at it that way. You mentioned a lot of them. It could be consumer-focused.

It might be autonomous robotics-focused. It could be power-focused. what exactly do you think your highest conviction is with regard to all of those sub or mini themes within the artificial intelligence trade? To me it's software. Because software can be hyperscalor, the use cases, cybersecurity.

I think software, it's a golden age for software. That's why I think you see a lot of these traditional mature companies, Oracle, IBM, you're making new all-time highs. It's a renaissance. And I just believe it's something where software, you all see a lot of M&A there. it from a thematic perspective, it is just the, I think, beginning, you know, of where this is all

heading in terms of AI revolution, software just starting today. All right, because that's different than one of your big calls over the past five, seven years, which has been Tesla, and Tesla, a case that you've made, not a car company, not even maybe a technology company, but more specifically a way to play autonomy and robotics. Is that still that autonomous and robotics theme or mini-tebronement? theme still something that you are high on? Oh yeah. Now as a theme, software as the group in terms of what I view is probably the purest play AI name along with Nvidia, it's Tesla because of my view of robotics and autonomy. I mean, I believe autonomous alone is worth a trillion dollars to the Tesla

valuation, which I how we get to a two trillion dollar valuation. So to me, it's a good example of we are just starting to what I view is this next phase. But the golden goose for AI, is autonomous and robotics. That's why Elon and Jensen are so focused on those areas. All right. And Todd, you're going to cap us off here. Let's talk about what you think is going to be the theme, if you will, in investing or ETFs that is maybe being overlooked right now as we head towards the back half of the year.

So I'm going to cheat on this and just say active management, whether it's tied to thematic ETFs or not. But active management is becoming increasingly popular. 40% of the flows in the first five months of the year have come from active ETFs. There are active thematic ETFs that are out there. BlackRock, I shares has one of the more popular AI-themed ETFs. BAI is the ticker. I think active management is going to play a much larger role.

We saw Tiro Price, for example, just launched some active sector-oriented ETFs last week. This is a growing speed. Now it's time to round out the conversation with some thoughtful analysis and perspective to help you better understand ETFs with our Markets 102 portion of the podcast. Todd Rosenbluth of Vetify continues with us now. Todd, thanks for sticking with us on this podcast. We talked a lot about thematic AI investing. I wonder if that's the only part of the market right now that's getting all of the attention.

If there are other places of the market that are not getting the attention they should be, what are they and why? So we found that many advisors and investors are looking to diversify away from their U.S. equity and U.S. fixed income portfolios that are up 2 to 3 percent, and they're really more interested in international equities than they had been beforehand. Now, some of that is the result of international equities performing very well, and that's also they believe that international equities are a stronger alternative than perhaps adding commodities to the portfolio or adding an alternative like Bitcoin. So we had VETify asked the

question, how are you looking to diversify your portfolio? Recently to our advisor community, overwhelmingly international equities was at the top of the list. So I wrote about that recently on our ETF trends.com website as well as some of the ETFs that folks might want to take a closer look at. Now, what types of those ETFs should people be looking at? International, global is a very, very broad, big basket to allocate to. Are there specific geographies you're looking at that are garnering interest? Is it generally the underperformers over the course of the last few years that are now the most compelling catch-up trade? How exactly are investors in your mind and through your research really trying to pick the parts of the international market that they want to be.

exposed to as opposed to just saying by any general international or global focused ETF. So I'm going to pick up on that last point. For many people to invest internationally, they want to invest broadly. So the I shares core MSCI, EFA, ETF, IEFA, VEA, which is a vanguard, developed markets, ETF. Those are ways that we're finding people are getting exposure primarily to international markets. So in the United States, we tend to find people are targeting sectors or styles or even dividends.

They're not doing that the same way internationally, and we think perhaps they should. So we highlighted some dividend-oriented ETFs in recent commentary that folks could be able to take a closer look at. So Wisdom Tree has an international quality dividend growth ETF, IQDG. So I touched on a few things that in the U.S. we think about a lot. Quality and dividends are topical areas. It works internationally also if you wanted a higher dividend yielding approach. There's an ETF iDog, I-D-O-G, yes, truly like the pet that some of us have. It's the Alps International Sector Dividend Dogs ETF, and this ETF takes a look at the highest dividend yielding stocks in developed markets. So that's one way of slicing it

as opposed to a more core-oriented approach. Now, it's also a little bit more nuanced, but those international global investors in the ETF markets are a little bit more keenly aware of this. But in many cases, the international exposure has to factor in the effect of currency moves. We've been talking so much about the decline of the dollar from its recent highs over the course

of the last several months here, and the strength of currencies that are not the US dollar against it. Oftentimes, that's a big, big part of the return or risk profile for many of these international or global-facing ETFs. How much do international investors with these ETF products have to look at whether or not these products are currency hedged or unhedged, and how much of that currency, possibly appreciation, is driving some of the performance in these funds as opposed to the actual local performance

of those stocks? A number of things there. So the good thing is the easy part with ETFs is that if an ETF is currency hedged, it will have hedged in the name, unlike with an actively managed mutual fund where sometimes it's hedged, sometimes it's not, and you'd have to dig in to do your own due diligence. So the wisdom tree, Europe, hedged equity ETF, HEDJ. In fact, it even has hedge in the, if you said the ticker out loud, that makes it even easier. for you. That is a currency hedge ETF. So it is going to hedge against the euro. There's Japan hedged ETFs. I shares has a MSCI currency hedge Japan ETF. Again, it's in the name. So if you don't see hedged in the name and it's an index-based product, it means it's unhaged. And you are taking on that currency risk. Taking on risk or not is something people should be fully aware of when they walk into an international investment product. Actively managed international equity ETFs, that's going to be different.

They probably don't have currency hedged in the name and we're seeing more and more of these international hedge products. So Tiro Price has an international equity ETF, TOUUS. That is a good fun to take a close look at for folks that believe in active management want the best ideas from around the world from a firm like TiroP. price, they'd have to take a closer look to see if that fund is or is not hedged. I don't know it off the top of my head. I probably should have if I was going to use that as the example. All right. Todd Rosenblum, the Vettify, with the latest on that international

trade for the exchange traded funds market. Thank you very much. We'll see you soon, sir. It's a pleasure, Dom. Thanks a lot. All right. That does it for the ETF Edge podcast. Thank you very much for listening. Join us again next week or just head over to etfedge.cc.com. How does InvestcoQQQ rethink possibility? By rethinking access to innovation and the NASDAQ 100. Let's rethink possibility. Investorbiters, Inc.