AI “play” - active or passive?

thingswerentthisbadinmyday

A family member (whom I help with SIPP admin, etc) has asked me for my thoughts on an “AI” play. Although on a personal level, I’d probably prefer to stick with what I know, I do want to give whatever help I can.

We’re definitely not talking about individual company shares here and so I’m thinking something like an ETF with a focus on Tech companies or an Investment Trust with a similar underlying portfolio would probably be the best bet.

In any event, we’re not going to be talking a huge amount (either in £ terms or % of the overall portfolio).

All this has come about as a result of the recently announced tariff changes by HL (I’ve been active in the relevant forum thread) & after far too long doing not a lot with the portfolio, we managed to sit down yesterday and make some real progress with portfolio composition - including a planned switch out of OEICs into ETFs/Investment Trusts to take advantage of the £150 charges cap.

Any thoughts (on the AI play) would be much appreciated.

phlebas192

Closest I get to this sort of thing is a small legacy holding in Allianz Technology Trust (ATT). It's portfolio is strongly aligned with companies that invest in AI.

A Nasdaq tracker is going to be a pretty decent match given how much the top companies dominate it. I see that there are also what look to be AI specific ETFs available but I've not looked beyond the names!

El_Torro

Many (most?) people believe we are currently in an AI bubble. Not sure now is the best time to double down on investing in AI. Sure, some companies are going to shoot up in value in the coming years as a result of AI, however many others are going to go bust (assuming we really are in an AI bubble).

Looking at recent posts on this forum a lot of people are betting against AI by redistributing their portfolio to have less invested in the US. Personally I'd rather do that than go all in on a tech fund. That's not to say that one strategy will make more money than another, it's all guesswork until after the fact.

MCMLXXVII

El_Torro is right: There have been repeated warnings that we’re in a huge AI bubble. Even before that, investments in the field were highly volatile even by tech standards. Unless you know what you’re doing, now likely isn’t a great time.

An alternative might be to get exposure to the physical inputs and infrastructure AI depends on.

thingswerentthisbadinmyday

Thank you to all for your helpful comments.

Nothing has been decided as of yet and I plan to actively dissuade (the family member) from investing any more than a modest sum.

Although I have found a couple of ETFs (one is semi-conductor specific), I do think that his best bet is either something like a NASDAQ ETF or perhaps an Investment Trust with a reasonable concentration into the “big 7” plus perhaps a couple more known AI related companies.

Alternatively, put a chunk into an S&P 500 ETF and ‘walk away’/draw the curtains for 5 years!

phlebas192

https://forums.moneysavingexpert.com/discussion/comment/81883382#Comment_81883382

Are you aware of any companies that have strong exposure to the AI infrastructure etc that won't be badly hit if the bubble does indeed burst? Nvidia would be the obvious example except that both its sales would fall significantly hence impacting profits and exponentially the share price but worse still it has massively invested in the AI companies themselves - effectively paying them to buy its chips and keep the ball rolling…

I am reminded of the mantra back in the dot com boom that you should invest in the "picks and shovels" manufacturers which made some sense until actually thought about. The analogy goes back to the gold rushes and, indeed, manufacturers of picks and shovel did make a killing during the rushes, far more than the average prospector - but as soon as the rush ended, no one was buying picks anymore so it would have been silly to invest in these companies once the boom was apparent. When the dot com bubble burst the equivalent manufacturers such as Intel and Cisco didn't go bust but their share prices collapsed and that's even though the internet itself (and the hardware they supplied) became ever more central to our lives and the economy. Even now, Cisco has only just reached its dot com heights and Intel is a long way off doing so.

Ultimately, investing in AI appears to be something that has to be done on faith. You either believe the story that AI is going to become everything, in which case you should try and invest in as many AI companies as possible in the hope of hitting the one (and it may be only one) that wins out. Or you should avoid the sector as much as you possibly can.

Alexland

I wouldn't touch a thematic investment with a barge pole or help anyone invest in one.

https://moneyweek.com/investments/funds/thematic-investing-problems

I also wouldn't suggest people just whack it in the S&P500 especially at current US valuations or for only 5 years - around half a market cycle not that they are that predictable or consistent.

thingswerentthisbadinmyday

https://forums.moneysavingexpert.com/discussion/comment/81883480#Comment_81883480

Thank you.

I very much enjoyed reading your thoughts. Like you, I was around when the dot.com bubble burst.

thingswerentthisbadinmyday

https://forums.moneysavingexpert.com/discussion/comment/81883484#Comment_81883484

Thanks. My plan is to nudge in the direction of an Investment Trust and/or Nasdaq ETF.

Even then, I will strongly recommend a very limited investment.

On a personal level, I’m the type of person who is currently sitting on “too much” cash and money market funds.

Over the last few years, I’ve had my fun and games with AIM stocks which has tended to influence my attitude towards risk somewhat. Personally, I don’t want a repeat as I’d like to sleep at night!

Alexland

Do you have an idea on your family member's tolerance to seeing future market corrections and crashes and how deep, uncertain or long they might think it's reasonable to wait for a recovery before it might cause them sleepless nights, to sell low or when the wait for recovery might start affecting their life spending plans?

For most people a globally diversified multi asset portfolio is a good answer especially now bonds are looking attractive again.

thingswerentthisbadinmyday

https://forums.moneysavingexpert.com/discussion/comment/81883691#Comment_81883691

Yes, I do. He is far, far more tolerant of the ups and downs of markets than I ever have been or will be in the future.

Any investments made will be inside a SIPP Drawdown account and there are no plans to touch/withdraw anything for at least 7 years, probably 10.

And with regard to inheritance, he is not in the slightest bit concerned should his SIPP fund be totally exhausted in later life.