This AI ETF Is Missing the Biggest AI Winners

Key Points

• The Global X Robotics & Artificial Intelligence ETF (BOTZ) has fallen more than 9% over five years despite gaining roughly 140% since its 2016 inception.
• BOTZ's underperformance stems from heavy concentration in legacy industrial automation stocks, significant international exposure, and minimal allocation to pure-play AI and hyperscaler names.
• Despite recent struggles, BOTZ remains positioned to benefit long-term from forecasted growth in industrial, service, and humanoid robotics markets, with Tesla's Optimus program as a key catalyst.

For investors who favor exchange-traded funds (ETFs), the market has never been more dynamic. Not only do ETFs now outnumber individual stocks, but the sheer versatility of today’s funds allows investors to target nuanced strategies, from exposure to thematic trends like the memory chip shortage to increasingly risky leveraged short-term speculation.

But as with any asset class, being innovative is no guarantee of success. And despite AI continuing to dominate the market narrative, one ETF that provides exposure to it has demonstrated that an early start does not always translate into market-beating returns.

The Global X Robotics & Artificial Intelligence ETF NASDAQ: BOTZ debuted on Sept. 12, 2016, providing market-cap-selected and weighted exposure to companies involved in the development and production of robots or AI.

Since its inception, BOTZ has gained roughly 140%. But over the past five years, the ETF is down more than 9%, including a loss of around 15% from its all-time high on May 13.

Given some fundamental challenges its portfolio presents, that downtrend looks unlikely to abate in the near term.

BOTZ’s Concentration Risk Rears Its Ugly Head

The foremost cause of the Global X Robotics & Artificial Intelligence ETF’s underperformance boils down to the fund’s composition.

Nearly 48% of BOTZ’s portfolio is in the industrials sector, with technology trailing around 35%.

That’s because the ETF currently has a heavy allocation to legacy automation, including traditional factory automation and hardware companies such as Keyence OTCMKTS: KYCCF, its largest holding, ABB Ltd. OTCMKTS: ABBNY, and FANUC OTCMKTS: FANUY. Those three companies alone account for roughly 29% of the fund, and each has seen elevated volatility this year.

More broadly, the fund’s top 10 holdings make up more than 57% of its portfolio, creating significant concentration risk.

The fund’s second-largest holding, NVIDIA NASDAQ: NVDA, is down more than 5% since hitting its all-time high on May 14 following a torrid five-year run. The pillar of the semiconductor industry—which announced the $12.93 acquisition of Hugging Face on Sept. 3—now carries a beta of 2.22, making it 122% more volatile than the market.

The ETF lacks significant pure-play AI exposure beyond NVIDIA. By industry exposure, semiconductors only account for about 10% of the fund.

Meanwhile, Alphabet NASDAQ: GOOGL provides the fund's only hyperscaler exposure. But at just over 2% of the portfolio, BOTZ largely misses out on the mega-cap tech names that are often responsible for a disproportionate share of the market’s performance.

The fund’s concentration has magnified the effect of weak performance from several holdings, including:

• The fund’s third-largest Magnificent Seven position, Tesla NASDAQ: TSLA, is down more than 19% year to date (YTD).

• Robotic-assisted surgical systems manufacturer Intuitive Surgical NASDAQ: ISRG is down more than 36% YTD.

• And Chinese AI and digital services provider Baidu NASDAQ: BIDU is down more than 30% YTD.

The fund is also underperforming due to its substantial international exposure. While financials have played a large role in international equities outpacing their domestic counterparts this year, global industrial stocks have recently faced headwinds—including weak domestic demand in several major overseas markets and elevated energy costs—that ETFs predominantly holding U.S.-domiciled companies have mostly been able to avoid.

After the United States, roughly 30% of BOTZ’s holdings are based in Japan, including Keyence and FANUC. Switzerland (10.2%) and China (6.1%), which are grappling with significant U.S. tariff rates, rank third and fourth in geographic exposure.

BOTZ’s Silver Lining: Robotics Growth Provides a Long-Term Catalyst

Given its current holdings, BOTZ functions less as a speculative AI and robotics fund and more as a cyclical automation play.

And while its expense ratio of 0.68% is higher than some funds that provide more balanced exposure to hyperscalers, pure-play AI stocks, and robotics firms, it rebalances semi-annually. The concentration risks it currently carries could improve as soon as Friday, Sept. 11, when it is next slated for review.

Regardless, the ETF is positioned at the forefront of two explosive industries. AI’s growth trajectory has been well-documented. But the fund’s robotics holdings can introduce extremely high-growth industries to investors’ portfolios.

According to industry consultancy firm Grand View Research, the global industrial robotics market is forecast to undergo a compound annual growth rate (CAGR) of 9.5% between 2026 and 2033. During the same forecast period, the global service robotics market is set to benefit from a CAGR of 12.6%, while the global humanoid robot market is slated for a CAGR of 38.2%.

Tesla, a core holding in BOTZ, should directly benefit from the latter. The company is currently transitioning its production lines at its Fremont Factory from Model S and Model X EVs to Optimus manufacturing. The company is aiming for public sales in 2027, with long-term plans to scale production at its Gigafactory Texas location.

Additionally, generative AI—which the fund currently lacks significant exposure to outside of Alphabet—is rapidly shifting from software chat models to physical systems. As smart factories continue to increase in popularity, the companies in BOTZ’s holdings are positioned for heightened demand for automation in applications ranging from the onshoring of manufacturing, logistics, and warehousing.