Investing in artificial intelligence the easy way

Investing in artificial intelligence the easy way

13 April 2021 from Invested.dkReading time: 6 minutes

Artificial intelligence (AI) is no longer reserved for dark science fiction movies and blurred prospects. Artificial intelligence is a reality today and is used in many places without one necessarily thinking so much about it. Close examples are e.g. Alexa and Google Assistant, which are popular technologies based on artificial intelligence. Other examples are the combination of cloud computing and cheap storage in the cloud, which means that machines and algorithms are already today able to evaluate large amounts of data, identify patterns and then make sure to make the right and best decisions, often better than humans. Tesla's Autopilot, although still under development, is a good example of the result of artificial intelligence, which is mainly based on the processing of large amounts of data.

Going forward, artificial intelligence will be able to address all aspects of our lives and bring about lasting and significant change. The consequences will probably be more extensive than the changes we have experienced so far with smartphones and PCs. Artificial intelligence is much more than “just” some clever algorithms. It opens up a world of new technologies and machines. For those companies that manage to seize the opportunities, it will have a huge potential for improving products and services.

There are many stocks that make themselves in the field of artificial intelligence in many different guises. An easy way to invest within this exciting theme would be to at once buy into a 1: 1 exposure in an index of various stocks that just operate in the field of artificial intelligence. It can be done, for example, by purchasing a so-called tracker certificate, which reflects an index of shares within the area. In October 2020, the Swiss investment house Vontobel launched such an AI certificate, which reflects the 1: 1 development in the Artifical Intelligence Index, which is calculated by Solactive AG. This index consists of 14-20 selected shares, all of which meet the set criteria for market value, industry specification, etc. Read more about the composition of the index below.

It should be noted that certificates are generally classified by the Danish FSA as complex instruments that are not suitable for all investors. Unlike most bull and bear certificates, however, Vontobel's tracker certificates do not contain leverage, which means that the instrument can be compared with other index trackers such as index funds (ETFs, for example), cf. below, where the legal structure of the certificate is described in more detail.

Why invest in artificial intelligence through a certificate?

Investing in an AI-oriented tracker certificate is an easy way to buy into the artificial intelligence theme without having to invest directly in selected individual stocks, which may or may not outperform over time. It will be both time consuming and costly to buy into a number of these stocks with smaller positions. By buying into an AI certificate, you partly save the trading costs by having to buy many shares, but you also easily get your risk spread. Of course, you still have the overall sector risk, but you are more confident of also getting a share of the sector's winners over time. It is also advisable not to place too large a share of one's total investments in such a narrow sector as this.

What do you invest in?

As mentioned, the AI certificate's underlying index is "The Solactive Artificial Intelligence Performance-Index", which is calculated by Solactive AG. Only companies with significant revenue / development in artificial intelligence are included in the index. The individual shares do not necessarily have to be based solely on artificial intelligence, but a certain proportion of the underlying company must act within the area. The index is rebalanced twice a year in September and March. The exact criteria for the index can be found here.

When you invest in the certificate, you are currently exposed to a total of 20 different shares, all of which are in the field of artificial intelligence. The table below shows the current composition and weight of the individual shares that you are exposed to when investing in the certificate.

The table above shows the composition of Vontobel's AI tracker certificate at the end of February 2021. Read more about the current composition and price development in the certificate's factsheet, which is continuously updated.

The three largest positions each make up approx. 7%, so the portfolio is not so dependent on the development in a few shares. Two of the three biggest positions are the two Chinese social media platforms JOYY Inc. and Weibo Corp., both of which are traded on Nasdaq in the form of ADR certificates. These two shares have risen in the past year, respectively, 100% and 30%.

ASML Holding is a major Dutch company, a world-leading manufacturer of photolithography systems used in the manufacture of semiconductors. ASML has risen 63% in the past year, is traded on Euronext Amsterdam and today has a market value of almost DKK 250 billion. USD.

The fourth largest position of approx. 6% do not require the large presentation, as it is American Alphabet, which is the parent company of Google and others. In addition to the well-known Google Assistant, the group works i.a. with self-driving cars and much more in the field of artificial intelligence. In the past year, the share has risen approx. 38% and is today one of the world's most valuable stocks.

One must be aware that approx. two-thirds of the index are US equities, while just under a quarter are Chinese. Approximately 90% of the shares are traded in USD, which is why you will predominantly be exposed to USD. The remaining 10% is made up of EUR.

Costs

You pay 1.2% in annual costs in the form of a management fee, which is calculated and paid daily in the same way as when investing in an ETF. These costs must be said to be somewhat higher than one typically pays for index investment, at least in the slightly broader indices. However, it is not uncommon for costs in narrower indices to be higher. In this connection, it is also worth noting that the certificate is not geared, which many certificates are otherwise. This means that the certificate is not continuously charged with financing costs.

In addition to the annual costs, you will have to pay ordinary brokerage for purchases and sales, just as you will have to accept a certain spread when trading, as the certificate is listed on the stock exchange.

The certificate itself is issued in Danish kroner, which is why you do not need to exchange for foreign currency when buying and selling.

In Danish, you can read the certificate's central investor documentation (Key Information Document - KID) here, where information about the current costs and conditions is available.

Legal structure of the certificate

Tracker certificates at Vontobel, unlike most bull and bear certificates, do not contain leverage. The certificate is “open-ended”, which means that no specific expiration date has been set. Vontobel, however, may choose to redeem the certificate by giving notice to investors. The certificate is traded on an exchange, which in Vontobel's case is Nordic Growth Market - Nordic MTF Denmark in Danish kroner. In addition to being able to trade the certificate on an ongoing basis during the stock exchange's opening hours, Vontobel ensures that prices are set in the certificate (market making) on an ongoing basis so that you are sure of being able to sell the certificate again. Vontobel issues the certificate in Germany, and Vontobel's listed holding company based in Switzerland is the guarantor. As an investor, you therefore run a risk on the issuer or guarantor, which in the end may mean that you completely lose your investment if Vontobel goes bankrupt and is unable to meet its obligations in relation to the issued certificates.

If you want to dive deeper into the complete prospectus, you can find all the certificate's legal documents here. The legal structure, including the mentioned risks, is also briefly described in Danish in the above-mentioned central investor documentation (KID).

Important Notice

This information is neither an investment advice nor an investment or investment strategy recommendation, but advertisement. The complete information on the securities, in particular the structure and risks associated with an investment, are described in the base prospectus, together with any supplements, as well as the final terms . It is recommended that potential investors read these documents before making any investment decision. The documents and the key information document are published on the website of the issuer, Vontobel Financial Products GmbH, Bockenheimer Landstrasse 24, 60323 Frankfurt am Main, Germany, on prospectus.vontobel.com and are available from the issuer free of charge. The approval of the prospectus should not be understood as an endorsement of the securities. The securities are products that are not simple and may be difficult to understand. Past performance is not a reliable indicator of future performance.

18/05/2021 19:29:22

 

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