There’s Nothing Special About Dan Ives’ New AI ETF, and Even the Chatbots Agree

Watch this space, mark this date, and bookmark this URL. This is one we’ll likely return to within the next year or two. Because as has been the case in every past stock market cycle (at least the ones I’ve seen since the 1980s), there are events and occurrences that, at the time, do not get much attention. But some time later, traders wish they had.

And so it is with the Dan Ives Wedbush AI Revolution ETF (IVES). The fund launched in early June and appears to have had about $60 million in initial assets in place for launch. 

As we see below, a month-end proxy for AUM was about 8x that early days’ figure. 

As of Tuesday’s close, IVES’ assets under management had spiked to $750 million. That’s a great win for Mr. Ives, who has become something of a cult figure as a tech analyst who both identifies solid stocks in his sector, and wears sport coats and shirts that cannot soon be forgotten. As they say, “things you don’t see at a market bottom.”

Dan Ives is not the concern here. Ironically starting out of college at HBO, not at a brokerage firm, he has made several stops on the “sell side” of the business, and the launch of IVES is more a testament to his media visibility, following sustained efforts in a market area where I suspect many were calling the top years ago. Influencer status in the sell-side analyst business is not a given, and I applaud him for reaching that level.

ETFs Are Made, Not Born

It takes a lot of coordinated wheels to make an ETF vehicle run hot, as IVES has been during its first four months. A huge liquidity bubble will likely be seen as the warning sign many missed. But not for now.

Ives, his firm (Wedbush), and the folks who created the Solactive Wedbush Artificial Intelligence Index around the analyst’s own stock research, all played a role in getting this ETF to market, and in drawing attention to it. 

This is something not all investors realize. There are now years of evidence showing that if an ETF has great performance, the assets may find it. But if an ETF has great audience recognition, it’s much more likely they will. If you are nodding your head and thinking, “a lot of life works that way now,” I’m with you.

But that doesn’t make this ETF special. What would? If it did something that others don’t do, such as exploring a true niche of the stock market. IVES is based on an index that was likely created in part to be able to bring an ETF to market a year later, since new ETFs are allowed to use that predecessor “track record” for the first part of their existence, under a set of rules that includes using full calendar years and a substantially similar investing strategy. 

“Differentation” is what I suspect will separate the long-term winners from the rest. In a market where a public company can change its name or business focus to AI or crypto mining and see its stock rocket upon the announcement, you can ride the coattails for a while. Until someone steps on the coat, and the whole thing tumbles to the floor.

What Makes This ETF Special? Nothing Super Obvious. 

Capitalizing on a media personality isn’t a new idea. And my goal here is not to recommend for or against the IVES ETF. It is, however, to alert traders and investors about what this new product is, and isn’t. Here’s a short list:

1. The ETF’s prospectus states that it aims to capitalize on the rapid growth of artificial intelligence by investing in companies poised to lead the AI transformation. This fund offers investors exposure to a diversified portfolio of firms at the cutting edge of AI technology. It is not the only fund that does this. It is the only one that is specific to Wedbush’s research engine.
2. I’m not a big fan of using expense ratio as a priority analytical tool with ETFs, since many of them are a case of getting what you pay for. But at 0.75%, or $75 on an initial $10,000 investment, I’d expect to get a truly differentiated portfolio.
3. New ETFs are not as easy to locate holdings for, so I went right to WedbushFunds.com, IVES’ own website. I see all the “usual suspects” here, and the only difference between IVES ETF and several other tech-heavy index ETFs is some modest spread in the percentage weightings of the top stocks. But if an investor said “I’m buying this ETF so I can get access to a basket of cutting-edge AI stocks,” I think you’re getting the equivalent of going to a wild game restaurant, only to realize you were given a plate of chicken. The top holdings include Tesla (TSLA), Taiwan Semi (TSM), Oracle (ORCL), Alphabet (GOOGL), Broadcom (AVGO), Apple (AAPL), Nvidia (NVDA), Microsoft (MSFT), and so on. 

I saw this list and thought, who better to ask about the hot new AI ETF than AI? Specifically, I listed IVES’ top 25 holdings and asked the chatbot to provide a list of ETFs that held at least 20 of them. It responded with this (paraphrased): 

“This list is a mix of large tech stocks which are components of major market indexes like the S&P 500 and Nasdaq 100.”

It essentially told me that if I wanted to own a basket of those stocks, “ETFs that track these broad indexes are your best bet.” 

Hey, my middle initial is A, so that makes me RAI. But even when we take that R away, AI yields the same response. 

I’m familiar with the AI ETF space, and came up with a quick 5-some including IVES. I wanted to see if there was some “alpha,” even over the short time frame that matches IVES’ existence. 

The answer is yes and no. As with any measurement period of weeks, not years, a spike up or down here or there in a couple of stocks can skew the results in favor of some ETFs over others. In the case of IVES, it was having Oracle, Alphabet, and Tesla within its top holdings that appear to have made the difference. That trio had unusually strong gains the past few months. 

That is less about value-added stock selection, and might have a bit to do with the aforementioned position size. But that assumes portfolio management is the driver here, as opposed to simply saying “hey, buy your AI stocks here.” Again, nothing against the ETF, and certainly not against Dan Ives. Right place, right time, awesome. 

The Bottom Line on the IVES ETF

Only time will tell. And this is still a new ETF. But if this turns out to be more like owning the same stocks in a different ticker, the fate of IVES could ultimately depend a lot more on investors’ general appetite for AI stocks than this or any other ETF’s cutting-edge research. In that respect, this is a new fund, but not a new situation in the increasingly commoditized world of ETF investing.