Worried About an AI Bubble? Invest in These 3 ETFs
Key Points
The ETFs listed below pay dividends and invest in quality blue-chip stocks.
They can provide investors with relatively safe ways to invest in the stock market today.
They have either limited or no exposure to tech.
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Artificial intelligence (AI) stocks have been red hot in recent years, perhaps too hot. The problem is that has inflated the value of the S&P 500, which has historically been a safe index to track as it's a collection of the leading stocks on the market. But if it's too heavily tilted toward tech, as it arguably is now due to soaring AI stocks, that may make investors a bit nervous about investing in normally safe funds that track the S&P 500.
The good news is that there are alternative options. You can invest in exchange-traded funds (ETFs) that give you a diverse mix of stocks, while keeping your overall exposure to tech to a minimum. Three ETFs that you may want to consider are the Vanguard High Dividend Yield Index Fund ETF (NYSEMKT: VYM), Invesco S&P 500 Revenue ETF (NYSEMKT: RWL), and the State Street Consumer Staples Select Sector SPDR ETF (NYSEMKT: XLP). Here's why these three ETFs are AI bubble resistant.
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1. Vanguard High Dividend Yield Index Fund ETF
The Vanguard High Dividend Yield ETF is a solid fund for investors who not only want to minimize risk, but who also want to collect dividends. As the ETF's name suggests, it provides investors with a high dividend, which currently yields 2.4% -- that's more than twice the rate of the S&P 500 average of 1.1%.
The fund holds 566 stocks in its portfolio, which provides some excellent diversification. Financial stocks account for 21% of its holdings and while tech is the next largest sector at 14%, the risk is quite limited. Its largest holding is Broadcom, which accounts for nearly 9% of the portfolio, but it's also the only tech stock within its top five.
Year to date, the ETF has risen by 13% in value. It has a fairly minimal expense ratio of 0.06%, which is negligible for the safety, diversification, and dividend income that comes with this quality fund.
2. Invesco S&P 500 Revenue ETF
The Invesco S&P 500 Revenue ETF provides investors with an alternative way to track the S&P 500 index, which features the top stocks on the market. Rather than basing its weighting on market cap, which many S&P 500 index funds do, this ETF weighs stocks based on revenue.
This leads to a very different stock makeup at the top of its portfolio. You won't find Microsoft or Nvidia among its top 10 holdings. Instead, you'll see Walmart, McKesson, UnitedHealth, and many other non-tech companies. Tech stocks only account for 12% of the overall holdings. Instead, it's healthcare that is the largest sector -- at 21%.
At 0.39%, the ETF's expense ratio is a bit high when compared to other index funds, but for the reduced exposure to tech, it may be justifiable for risk-averse investors. This year, the Invesco ETF has risen by 17%, and it offers a yield of 1.3%.
3. State Street Consumer Staples Select Sector SPDR ETF
If you want absolutely no exposure to tech stocks, then you may want to go with the State Street Consumer Staples Select Sector SPDR ETF. This fund is focused entirely on consumer staples, which include companies that sell day-to-day goods and essentials that consumers buy on a regular basis.
Walmart, Costco Wholesale, and Procter & Gamble are the fund's top three holdings, which together make up around 29% of the overall portfolio. These are blue-chip stocks that generally make for excellent long-term investments. Many of them also pay dividends, and that's reflected in the ETF's above-average yield of 2.7%.
The fund's performance has been lackluster this year, as it's up a little under 1% since January. However, the dividend income will boost those returns. And if the market does indeed crash due to an AI bubble, investors may pivot into consumer staples stocks for safety and dividends, which could give this fund a possible boost. At worst, however, you get an ETF full of top consumer brands, which charges a low expense ratio of 0.08%.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale, Microsoft, Nvidia, Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF, and Walmart. The Motley Fool recommends Broadcom, McKesson, and UnitedHealth Group and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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