iShares listed an AI fund led by Walmart and drugmakers, not chipmakers
The iShares Future AI Beneficiaries ETF, ETF:AIBF, held $220 million on Friday, October 2, after listing on Wednesday, September 23 to track U.S. companies Morningstar expects to save money by adopting AI.
Key takeaways
BlackRock has listed an artificial-intelligence fund whose largest stock is Walmart and whose biggest industry slice is drugmakers.
The iShares Future AI Beneficiaries ETF ETF:AIBF owns U.S. companies expected to benefit from using artificial intelligence. It began operating on Tuesday, September 22 and listed on NYSE Arca the next day. It tracks the Morningstar US Artificial Intelligence Beneficiaries Select Index. By Friday, October 2 it held $220 million and 100 stocks.
BlackRock describes it as a way to own companies that benefit from AI, mainly by cutting costs and also by growing sales. The prospectus says a company qualifies if it is expected to cut costs by more than 10% over five years by adopting AI, or to lift net revenue by more than 10% over five years. A company is excluded if more than 10% of its current revenue is judged vulnerable to products AI could displace. The cost and revenue tests are a five-year forecast, not savings a company has already reported.
Firms that qualify on both counts rank first, then cost-savers, then firms that qualify only on revenue growth. The index targets 100 stocks, and no more than 20 from any one sector. AI producers and suppliers are capped at 10% as a group, and companies that qualify only on revenue growth get the same cap.
Morningstar resets the weights every quarter and rebuilds the membership each December, so Friday's mix is a starting portfolio.
Walmart led, with three drugmakers in the top five
Pharmaceuticals, biotechnology and life sciences, the group that includes AbbVie and Eli Lilly, were 21% of the fund on Friday, the largest slice. Capital goods, software and services, and the staples retailers, including Walmart and Costco, were next, and those four groups were more than half the fund. Walmart, at 3.93%, was the largest stock, and Palo Alto Networks was the first technology name among the five largest holdings.
The funds already trading
iShares already sells a fund that holds the companies that build the technology. The iShares Future AI & Tech ETF ETF:ARTY owns firms, in the U.S. and abroad, that contribute AI products, software and infrastructure. It listed in 2018. Chipmakers, including Nvidia, were its largest holdings at the end of September.
The iShares A.I. Innovation and Tech Active ETF ETF:BAI is run by a manager, not an index. It seeks companies that enable, develop and deploy AI. BlackRock classed about 90% of it as information technology on Friday.
In the holdings as of Wednesday, September 30, the overlap by weight was 3.3% with ETF:ARTY and 9.8% with ETF:BAI. The new fund did not hold Nvidia. The 10% cap on producers and suppliers keeps that part of the market a small slice of this portfolio.
The Alger AI Enablers & Adopters ETF ETF:ALAI is actively managed and can own both firms that build AI and firms that use it. Nvidia was 13% of that fund as of Sunday, October 4. Its overlap with ETF:AIBF was 9.2%.
On fee and size, the new fund is the cheap one and the small one.
ETF:BAI's figure is the fee after a waiver. BlackRock has agreed to waive 0.10 percentage points of a 0.65% fee through June 30, 2027. The new fund's 0.40% has no waiver.
A buyer also pays the spread. BlackRock's 30-day median bid-ask spread on the new fund, the gap between the buying price and the selling price, was 0.24% on Friday. ETF:BAI's spread was 0.02% the same day. The new fund traded 34,862 shares, against 724,694 for ETF:ARTY.
A one-way buyer pays about half of that gap, 0.12%, and pays it once. That is more than the 0.07 percentage points a year the fund saves against ETF:ARTY's fee.
On Friday, October 2 the fund had 8.88 million shares outstanding and closed at $24.84. That was about 44 times the 200,000 shares outstanding on Friday, September 25. The fund still had about $5 million on Monday, September 28, so the new shares arrived in the days after Monday.
Volume jumped past 30,000 shares after Monday, September 28
In the holdings as of Wednesday, September 30, 82 of the 100 stocks also sit in the SPDR S&P 500 ETF ETF:SPY, a fund that holds the S&P 500. The overlap by weight was 20.8% against that fund's holdings as of Sunday, October 4, more than the overlap with ETF:ARTY, ETF:BAI or ETF:ALAI. The median shared stock is held here at 6.1 times the weight it has there.
Frequently asked questions
What fund is this, and how big is it?
The iShares Future AI Beneficiaries ETF, AIBF, listed on September 23 and held $220 million and 100 stocks by Friday, October 2.
Why do Walmart and drugmakers lead an AI fund?
It owns U.S. companies expected to benefit from using AI, mainly by cutting costs, and pharmaceuticals, biotechnology and life sciences were 21% of the fund, the largest slice.
Does the fund hold chipmakers such as Nvidia?
The new fund did not hold Nvidia, and AI producers and suppliers are capped at 10% as a group.
How does a company qualify for the index?
A company qualifies if it is expected to cut costs by more than 10% over five years by adopting AI, or to lift net revenue by more than 10% over five years, and is excluded if more than 10% of its current revenue is judged vulnerable to products AI could displace.
