Dramatic jump in AI ETFs despite rough quarter

Wall Street is banking heavily on exchange-traded funds that give investors artificial intelligence exposure, according to J.P. Morgan Asset Management.

The firm’s “Guide to ETFs,” which came out this month, finds it’s a top five theme by assets under management — even as volatility hit the group in the second quarter.

“Many [themes] are morphing towards AI and the ecosystem surrounding AI,” Jon Maier, the firm’s chief ETF strategist, told CNBC’s “ETF Edge” this week.

Maier, who led the insights team that published the report, also highlighted an overlapping relationship between AI-themed ETFs and infrastructure.

“It’s all kind of feeding into the AI story … the applications, the energy [and] the AI models,” he said.

Go with the flow? ETFs vs. mutual funds

JPMorgan’s Guide to ETFs also found that mutual fund overall inflows are meaningfully tapering off while more money is flowing into ETFs.

“That’s only going to continue,” said Maier, who added the report’s data showed negative inflows into mutual funds overall during the past several years.

He also suggests that ETFs have become more attractive to retail investors because of the tax benefits.

“They typically don’t pay a capital gain [tax],” he said.

Maier contends mutual funds are a different story.

“Imagine if you bought a mutual fund in 2022 and you’re down 20%, 30%, 40%, depending on what part of the market you bought, and you still got a capital gain of 6%. You’re not happy,” he said.