If Economists Are Correct About the Future of AI, Here Are 2 Global ETFs to Buy -- and 2 to Avoid
Key Points
A new Financial Times survey of economists found that some international stock markets might benefit more than others from the future of AI.
Vanguard research projects that international developed markets will outperform U.S. stocks for the next 10-30 years.
If you agree with this general forecast about the future of AI for stocks, you might want to invest in international ETFs like VEA and IEFA.
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Where is the best place in the world to invest for a future economy powered by artificial intelligence (AI)?
Some might say the United States. After all, many of the leading AI stocks are in the U.S. market. The U.S. tech sector has been one of the best bets of recent years, with the tech-heavy Nasdaq-100 index delivering cumulative gains of more than 500% over the past 10 years.
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Other investors might say China, Taiwan, or South Korea. Those Asian countries are home to developers of some of the most advanced AI models and some of the most important semiconductor and memory companies supplying the AI data center build-out.
But some experts aren't convinced that the biggest gains of AI's future will go to the biggest names in today's U.S. stock market, or to just a few countries that develop AI models and manufacture chips. Instead, a recent survey of economists found that 54% of respondents believe AI-related productivity gains and economic growth will be widely shared worldwide.
That means the best place to invest in AI's future might not be in America alone. AI might be a rising tide for a wider range of countries and companies. And that's good news for international stock investors.
Let's look at which international exchange-traded funds (ETFs) might benefit most from the future growth potential of AI -- and why.
Image source: Getty Images.
Best countries to invest for AI's future: G20 nations
The Financial Times asked 94 economists to share their thoughts on how widespread the AI-related gains in economic growth and productivity will be in the next 10 years. The response was optimistic: Most said they believe the Group of 20 (G20) nations will see "broad" or "nearly universal" gains from AI in the next decade.
The G20 nations are part of an international economic forum for finance ministers and central bankers. G20 countries include the U.S., Canada, the United Kingdom, and the European Union. The G20 includes advanced economies such as Australia and Japan, as well as emerging markets such as China, India, Brazil, Argentina, and South Africa.
But the survey had one note of caution. Respondents suggested that countries with more advanced economies ("developed markets") would be better positioned to adopt AI and capitalize on productivity gains. Developed markets might have more capacity to invest in AI solutions and put new technologies to work.
The poll's economists also warned that some less-developed nations might have lower readiness to adopt AI, due to weaker infrastructure. Other emerging-market countries with many jobs in outsourced business services, such as offshore tech support or customer service, might be vulnerable to more workers being replaced by AI.
For those reasons, emerging market stocks might underperform international developed markets in the future AI economy.
Why developed market stocks could outperform in the AI-powered future
If emerging markets underperform and more developed markets do better in the future, that would align with other recent research from Vanguard.
Vanguard's financial markets forecast model recently projected that U.S. stocks would be outperformed by international developed-market stocks over the next 10-30 years. Vanguard's model expects emerging markets to underperform developed markets across both timeframes.
Why are developed markets (wealthier, higher-income countries) a better bet for the future of AI? Vanguard's economists believe that the biggest gains of AI will go to companies that adopt AI technologies, not necessarily the companies that develop those technologies. Wealthier countries with well-established businesses might already have a strong foundation; now they can use AI as fuel for future growth.
Which international ETFs to buy for AI's future
There are no guarantees that any of these predictions are correct, or that any stocks, sectors, or nations will do better than others in the future AI economy.
But if you agree with the general direction of Vanguard's projections and the Financial Times survey, you might want to buy international ETFs that focus on developed markets. A few of these developed markets ETFs include the Vanguard FTSE Developed Markets ETF (NYSEMKT: VEA) and the iShares Core MSCI EAFE ETF (NYSEMKT: IEFA).
If you want to steer clear of emerging markets ETFs, you might want to avoid funds like the iShares MSCI Emerging Markets ETF (NYSEMKT: EEM) and the iShares Core MSCI Emerging Markets ETF (NYSEMKT: IEMG).
Here's a quick breakdown of these four international ETFs -- with a recommendation (bullish or bearish) on each.
|
Metric |
Vanguard FTSE Developed Markets ETF (VEA) |
iShares Core MSCI EAFE ETF (IEFA) |
iShares MSCI Emerging Markets ETF (EEM) |
iShares Core MSCI Emerging Markets ETF (IEMG) |
|---|---|---|---|---|
|
Number of stocks |
3,903 |
2,626 |
1,186 |
2,857 |
|
Top 3 markets |
1. Japan: 21.9% of fund |
1. Japan: 26.04% of the fund |
1. Taiwan: 29.08% of the fund 2. China: 20.3% 3. South Korea: 18.4% |
1. Taiwan: 28.9% of the fund 2. China: 18.9% 3. South Korea: 17.9% |
|
Average annual returns |
10 years: 9.76% |
10 years: 9.1% |
10 years: 8.4% 5 years: 8.3% 1 year: 28.1% (as of Sept. 30) |
10 years: 8.97% 5 years: 8.8% 1 year: 26.8% (as of Sept. 30) |
|
Dividend yield |
2.41% |
3.24% |
1.67% |
2.21% |
|
Price-to-earnings (P/E) ratio |
15.70 |
17.01 |
13.58 |
13.71 |
|
Expense ratio |
0.03% |
0.07% |
0.72% |
0.09% |
|
Verdict (based on AI research and forecasts) |
Bullish |
Bullish |
Bearish |
Bearish |
Data sources: Vanguard, iShares, Yahoo Finance.
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HSBC Holdings is an advertising partner of Motley Fool Money. Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Taiwan Semiconductor Manufacturing, Tencent, and Vanguard FTSE Developed Markets ETF. The Motley Fool recommends Alibaba Group and Roche Holding AG. The Motley Fool has a disclosure policy.
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