The world’s largest asset manager is betting that the best way to give investors exposure to the booming artificial intelligence trade is through a fund that is narrow and nimble. Tony Kim, head of the fundamental equities technology group at BlackRock , is helming a new AI-focused fund launching on Tuesday. Kim’s theory about the development of AI is that it is a growing “stack” of opportunity — with energy sources and semiconductors at the bottom, and applications building up from there. The actively managed iShares AI Innovation & Tech Active ETF (BAI) will start out holding a concentrated portfolio of 30 to 40 stocks, Kim said, and aim to add new winners as they emerge. “The goal of the whole fund is to basically embody this concept of time and the stack. And we will have an initial version of this, but what really is important is to be able to adapt,” Kim said. The top holdings in the ETF at launch are some of biggest names in the AI trade, including Nvidia and Microsoft . Some more under-the-radar names in the fund include Astera Labs , Coherent Corp ., and Japanese conglomerate Hitachi . The AI Trade The excitement around the AI trade may have recently lost some of its luster for short-term traders. The Nasdaq-100 Index has not made a new high since July, Nvidia traded sideways for much of the summer and Microsoft is down 5% over the past three months. However, Kim said that the plans and spending for advanced AI, possibly reaching so called artificial general intelligence (AGI), are already in motion and won’t be easily derailed. “Most of these companies in tech are all racing to get to AGI. We all have different views of AGI and when AGI will happen and what it will cost, but it will cost a lot more. Orders of magnitude more. And not only will it take that much more [money], it will take that much time,” Kim said. The valuations of some of the trendy AI stocks have also been a worry for some investors since AI took off with the introduction of ChatGPT in late 2022 . However, Kim said that some of the biggest stocks aren’t actually that expensive when considering their growth prospects, and that technology lately has lagged behind the rest of the market. What’s next The current phase of AI — building the models — will continue over the next five years, but companies will start trying to monetize those models in the form of consumer and enterprise AI systems, Kim said. Some of those have already been announced or are starting to roll out, such as AI assistants on Apple ‘s latest iPhones and Microsoft’s Copilot tools . Looking further ahead, larger breakthroughs are possible by the end of the decade and AI can “change the foundation of work,” Kim said. The companies that prove to be the winners there may not be on most investors’ radar yet, or may not even be publicly traded yet. “It’s all changing, and to say that we are locked in — that the Mag 7 is the only source of investing in AI — is, I think, very short-sighted,” Kim said. Kim is a manager for the BlackRock Technology Opportunities Fund , a mutual fund with $6 billion in assets and a four-star rating from a Morningstar. BlackRock, which ran more than $10 trillion in assets as of the end of 2023, is launching a similar fund in an ETF wrapper on Tuesday, the iShares Technology Opportunities Active ETF (TEK), with Kim as one of the managers. TEK will have a broader focus than the AI-specific fund. The BAI ETF has a net expense ratio of 0.55%, while TEK has a net expense ratio of 0.75%.
