According to VettaFi, there are 45 artificial intelligence (AI) ETFs you can invest in, ranging in net assets from a low of $1 million to a high of $10.8 billion. ETFs are taking over from mutual funds as the primary investment vehicle for American investors, so the range makes sense. But I’m curious about the best AI mutual funds to buy in 2023.
In June, Morningstar reported that narrow bets on thematic funds such as AI are losing propositions.
“From May 22 through May 26, investors poured approximately $232 million into exchange-traded funds that specifically target companies like Nvidia that help build or benefit from AI applications,” stated Morningstar’s June 13 article.
Morningstar reminds investors that thematic bets are often fleeting in their success and don’t possess the necessary attributes of long-term buys. It argues that total-market funds might be a better bet because any companies held within the fund that benefit from AI will undoubtedly help its net assets and share price grow.
For this article, focusing on three broader tech funds might be better. Indeed, it would be easier to pick three long-term winners.
Here are my three mutual funds to buy.
BlackRock Technology Opportunities Fund (BGSAX)
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The BlackRock Technology Opportunities Fund (MUTF:BGSAX) invests in growth companies disrupting technology. The actively managed fund invests across all market capitalizations in U.S. and non-U.S. equities.
The fund is managed by Tony Kim, the head of BlackRock’s technology equity team, and Reid Menge, Kim’s co-portfolio manager. The duo have more than 50 years of combined investment experience.
Virtually all of BGSAX’s top 10 holdings strongly relate to AI—and the top 10 accounts for 46.5% of the fund’s $1.57 billion in net assets. The three principal areas of technology by weight are Software & Services (30.59%), Semiconductors (29.14%), and Tech Hardware & Equipment (13.21%).
Geographically, 84.77% of the fund is invested in North American firms, with the remainder spread across Europe, Asia and emerging markets—stocks with market caps of more than $10 billion account for 92.12% of the portfolio.
The fund was launched in May 2000. It charges a relatively high fee of $1.17% annually.
Fidelity Select Technology Portfolio (FSPTX)
The Fidelity Select Technology Portfolio (MUTF:FSPTX) launched in July 1981. In the 42 years since, it’s attracted $11.1 billion in net assets. It’s been managed by Adam Benjamin since January 2022. The fund charges a reasonable 0.70%.
The fund’s top 10 holdings account for 72.8% of its portfolio, with Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL) and Nvidia (NASDAQ:NVDA) accounting for nearly 48% of the fund. Benjamin turns the entire portfolio once every four years.
FSPTX’s investment strategy is to invest in companies developing products and services that will benefit from technological advances.
The fund has had an annual total return of 13.58% since inception through Sept. 30. That’s 222 basis points higher than the S&P 500. The fund had an excellent second quarter. In the quarter ended June 30, it produced a return of 17.5%—almost double the index.
Nvidia gained 52% in the quarter, giving the fund its highest return out of 85 holdings. Nvidia’s AI chips are driving growth in this fast-growing segment of the tech sector.
Columbia Seligman Technology & Information Fund (SLMCX)
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The Columbia Seligman Technology & Information Fund (MUTF:SLMCX) invests in 50-75 technology stocks across every market cap. It seeks to buy undervalued companies that investors misunderstand, utilizing a growth-at-a-reasonable price (GARP) investment style.
SLMCX has six fund managers with an average investment industry experience of 28 years. The fund charges 1.20%, the highest of the three mutual funds on this list. However, you get what you pay for.
Launched in June 1983, SLMCX has gathered $10.5 billion in net assets over its 40-year history. If you invested $10,000 in August 2013, today it’s worth $61,420.
Since inception, it’s averaged an annual total return of 14.26%. Over the past three years, Morningstar has given it a five-star rating. Out of 228 funds, its performance was in the top 8%.
The top 10 holdings account for 42.92% of its 70-stock portfolio. The top stock by weighting is Lam Research (NASDAQ:LRCX) at 6.97%, nearly 7x the fund’s allocation in the S&P North American Technology Sector Index.
Here’s what the fund’s managers had to say about AI in its Q2 2023 commentary:
“At the midpoint of 2023, the technology market had posted strong returns, driven in large part by the enthusiasm surrounding artificial intelligence and its prospects for transforming the global economy,” stated the fund managers. “We too are excited about the productivity gains promised and believe we are in the early stages of a secular trend, but we remain watchful that the early winners may not be the companies that are the greatest beneficiaries of AI over the long term.”
That is precisely why you buy a broader tech fund like SLMCX.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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