Best ETFs fueling for Artificial Intelligence TAN QCLN KOMP

IBD logoThis post was originally published by Marie Beerens at Investors Business Daily

Cabot founder picks his best ETFs and sees Artificial Intelligence fueling them.

Rob Lutts, founder of Cabot Wealth Management, believes we’re just getting started on the artificial intelligence, alternative energy, autonomous driving and battery storage fronts. And he’s not afraid to invest in some of the best ETFs that embrace these innovations.

“We believe artificial intelligence trends are just beginning and will soon transform many sectors of the economy. This is a once-in-decade phenomenon which will cause technology spending and investing to much higher levels,” he told IBD.

Lutts founded Cabot 38 years ago to provide investment management to subscribers of his brother’s investment publishing business. But the family business story goes as far back as the mid-19th century. Today, with $1 billion in assets under management, the Salem, Mass.-based firm offers a full range of money management services to individual, family and institutional clients.

Finding Growth Companies … With Benefits

While his firm manages both conservative and aggressive investments, Lutts’ own focus lies in finding growing companies that bring new benefits to the economy.

“It’s all about computer speed and data processing,” he said. “We are just beginning to see the power of smart software and intelligent management of data. Many of my themes evolve around innovation related to data processing and new computer abilities.”

This is why his top three ETF picks include a solar fund, a clean energy fund and an innovation fund.

“Invesco Solar (TAN) is one of the best ways to play just solar in general,” said Lutts. “The real opportunity is in the commercial side.”

Commercial players include SolarEdge Technologies (SEDG) and Enphase Energy (ENPH), each at 10% of the $3.4 billion fund. “These are the enablers to build the solar industry and they’re very well positioned. They’re also global, with only 35% in the U.S., 15% in China and 12% Israel.”

Electrical Grids Face Challenges

Lutts said he believes electrical grid utilities will really be challenged in the next decade. “They’re going to have this infrastructure that is supported by less and less customers as people disconnect from the electric grid, produce their own power and be responsible for their own distribution in smaller circles.”

The fund holds about 50 stocks, and includes other solar names such as Sunrun (RUN), First Solar (FSLR), Daqo New Energy (DQ) and SunPower (SPWR). It was up 234% last year, but has declined 10.7% this year along with the market’s corrective action. It charges investors 0.69% a year to hold the fund.

“If you look at the individual companies in the fund, they’re growing at 40% to 50% a year. And I think that’s not going to stop,” he pointed out.

Best ETF Banks On Clean Energy’s Transition

For a more broadly diversified clean energy fund, one of his best ETF picks is First Trust Nasdaq Clean Edge Green Energy Index (QCLN).

The $2.8 billion fund includes a vast array of industries involved in green energy and is well-positioned for a transition to a sustainable economy. Those include alternative energies such as wind, solar and electric vehicles, as well as semiconductors, electrical components, chemicals and mining firms involved in the transition and manufacturing of components.

Among the fund’s 54 stocks we find Tesla (TSLA), Nio (NIO), Plug Power (PLUG), Albemarle (ALB), SolarEdge Technologies, Sunrun, Cree (CREE), Acuity Brands (AYI) and Universal Display (OLED). Tesla is on the IBD 50 stock list.

Despite the recent pullback, Tesla remains a top electric vehicle stock for Lutts. “I’ve never seen an industry where in 10-12 years, we’re told the entire industry is going to change their platform from fossil fuel to electric. Every auto company has said that by 2030 they’re not going to make combustion engines anymore,” he said. “It’s unheard of that an industry would change that fast.”

QCLN surged 184% in 2020 and is slightly down so far this year. It charges investors an annual management fee of 0.6%.

Best ETF Uses Artificial Intelligence To Pick Innovative Companies

His third best ETF pick is SPDR S&P Kensho New Economies Composite (KOMP). The fund tracks an index that uses artificial intelligence and quantitative weighting to select innovative companies that will be disruptive to traditional industries in the future. Those stocks tend to focus on increased processing power, connectedness robotics, AI and automation. These are the so-called “New Economy companies.”

The $2 billion fund holds 408 “innovative leaders. Many, many, many medium to small-size companies in there that are doing fantastic things. … This is the next-gen innovation way to invest,” Lutts said.

KOMP outperformed many innovation-focused funds during Q1 that tended to more closely track the market. It jumped 18.8% in Q1 and also gained 61.3% last year. It charges investors just 0.2% annually to hold the fund.

Top holdings include small-cap to midcap stocks such as Vuzix (VUZI), Riot Blockchain (RIOT), 3D Systems (DDD), Blink Charging (BLNK) and Microvision (MVIS). The fund also holds large-cap names including General Motors (GM), Tesla, Nvidia (NVDA) and Lyft (LYFT).

“The Kensho group is a unique research company that finds these companies by doing artificial intelligence searches, and they put them through their screens to determine whether they really are a place they should be investing in,” said Lutts. “So, they have a lot of new-on-the-spectrum companies that are just getting going, and I think some that Wall Street hasn’t figured it out yet that they’re really an innovative company.”

 

This post was originally published by Marie Beerens at Investors Business Daily

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