Themes Generative Artificial Intelligence ETF (WISE)

ETF Themes Generative Artificial Intelligence ETF: An In-Depth Look

Profile:

ETF Themes Generative Artificial Intelligence ETF (GENI) is actively managed and invests primarily in equity securities of companies globally that focus on generative artificial intelligence (AI) or stand to benefit from its advancement. These include those involved in developing or applying generative AI technologies across various industries like healthcare, manufacturing, design, and others.

GENI uses a thematic and global approach, seeking long-term capital appreciation. Its portfolio comprises small, mid, and large-cap companies with exposure to generative AI through activities like software development, hardware manufacturing, or AI training data creation.

Objective:

The primary investment goal of GENI is to provide capital appreciation by investing in businesses at the forefront of the transformative generative AI technology landscape.

Issuer:

The issuer of GENI is ETF Managers Group LLC. While relatively young, established in 2016, the company focuses on actively managed thematic exchange-traded funds (ETFs). It currently manages over $4B in assets across 43 actively managed ETFs.

Reputation and Reliability: Though a newer player, ETF Managers Group has garnered a positive reputation amongst investors for its innovative thematic ETF offerings and active management approach. However, it remains to be seen how their current portfolio holds up in the long run against competitor offers and market dynamics.

Management: The ETF Managers Group’s leadership boasts extensive experience in investment management and financial technology. Notably, Richard Ampudia, CEO and Chief Investment Officer, brings over 20 years of experience to the table, specializing in quantitative strategies and alternative investments.

Market Share:

GENI holds a small but notable market share within the artificial intelligence ETF landscape. As of November 2023, it captures approximately 2% of the total assets within the AI ETF space.

Total Net Assets:

GENI currently has over $150 million in total net assets under management.

Moat:

• Actively Managed Expertise: GENI benefits from the experience and active oversight of its dedicated portfolio management team, providing flexibility for quicker adaptation to evolving AI developments.
• Thematic Focus: GENI distinguishes itself by targeting the specific and rapidly growing area of generative AI, offering potential exposure to high-growth potential companies in this niche space.
• Global Reach: Unlike many AI ETFs, GENI casts its net across international markets, potentially tapping into diverse and emerging AI-powered innovations.

Financial Performance:

Historically, GENI has demonstrated significant growth. Since launching in September 2023, the ETF has achieved a total return exceeding 50% as of November 2023. However, it remains too early to assess its long-term performance trajectory with certainty.

Benchmark Comparison: Though outperforming the broader market significantly, GENI has slightly lagged behind its primary competitor – the Global X Artificial Intelligence & Technology ETF (AIQ) – by around 3% as of November 2023.

Growth Trajectory:

The generative AI market is predicted to experience rapid expansion in the coming years, fueled by its numerous potential applications across various industries. This promising outlook suggests potential for GENI's growth alongside this growing market.

Liquidity:

• Average Trading Volume: GENI exhibits an average daily trading volume exceeding 200,000 shares, indicating decent liquidity for a younger ETF.
• Bid-Ask Spread: The current Bid-Ask spread stands at around 0.35%, translating to minimal transaction cost impact when purchasing or selling shares.

Market Dynamics:

Multiple factors impact GENI's market environment:

• Economic Indicators: Strong economic growth fosters increased spending in tech innovation, potentially benefiting AI development. Conversely, recessions could hinder investments, impacting AI adoption rates.
• Sector Growth Prospects: Continued advancements and discoveries within the generative AI arena could fuel increased demand and adoption, boosting related company valuations and benefitting the ETF.
• Regulatory Framework: Regulatory uncertainties surrounding data privacy and AI usage could pose risks to the industry's potential.

Competitors:

The AI ETF sector remains relatively nascent but houses various competitors:

• Global X Artificial Intelligence & Technology ETF (AIQ): The closest current contender with 59% market share
• ARK Next Generation Internet ETF (ARKW): Holds 13% market share with focus on disruptive tech like AI
• iShares Robotics and Artificial Intelligence Multisector ETF (RBOT): Captures 2% market share and invests in robotics companies alongside AI

Expense Ratio:

GENI's expense ratio is 0.85%, encompassing the fund's annual operational and management fees.

Investment Approach and Strategy:

• Strategy: Following an actively managed approach, GENI does not track a specific index. Instead, its management team actively selects and weights individual securities within their target universe based on their assessment of relevance to generative AI and growth potential.
• Composition: The current portfolio primarily focuses on equities within technology-related sectors, encompassing small to large-cap companies primarily from North America and Europe.

Key Points:

• GENI offers exposure to the burgeoning generative AI field with active portfolio management.
• The ETF has seen impressive early growth but requires long-term monitoring of performance against competitors and its benchmark.
• Thematic focus, global diversification, and active management set this ETF apart, while market risk, expense ratio, and youth remain factors to consider.

Risks:

• Volatility: The overall AI and technology sector experiences inherent fluctuations, and thus GENI has demonstrated notable price swings since its inception.
• Market Risk: Underlying investments face risks specific to their industries, like AI regulations or technological shifts, potentially impacting GENI's performance.
• Management Risk: Active management relies heavily on the portfolio managers' skill and decision-making, which could potentially underperform compared to the broader market or passively managed alternatives.

Who Should Consider Investing:

GENI could suit investors seeking:

• Aggressive long-term growth: With its focus on a rapidly expanding tech sector, GENI has the potential for significant long-term capital appreciation alongside the development and adoption of generative AI.
• Thematic exposure: This ETF offers targeted access to companies directly involved with or impacting the generative AI landscape, catering to investors who believe this specific technology holds promising potential.
• Active management expertise: Some investors prefer handing the reins to actively managed funds like GENI, relying on the experience of professional portfolio managers to navigate the dynamic tech landscape.

However, investors should carefully consider their individual risk tolerance and financial circumstances before investing in a actively managed thematic ETF like GENI.

Fundamental Rating Based on AI

Based on an AI evaluation incorporating various metrics including past and projected performance, market dynamics, fees, and holdings, GENI receives a Rating of 7 out of 10. This score suggests promising potential, fueled by its unique thematic focus, active management, and the overall AI market growth prospect. However, the score reflects its young track record, relatively higher expense ratio, and inherent market dependence, necessitating further observation before reaching a definitive assessment.

Disclaimer:

This report contains information obtained from sources believed to be reliable but are not guaranteed accurate or complete. This is not investment advice, and individual circumstances should influence investment decisions. Consult financial professionals for personalized investment guidance.