The last year brought increased investor interest in capturing private equity through more accessible vehicles, such as ETFs. Derek Yan of KraneShares recently discussed the private equity ETF trend as well as the KraneShares Artificial Intelligence & Technology ETF (AGIX ) in a Asset Allocation Summit.
Investors look to private equity as a portfolio diversifier and for elevated return potential. However, access to private equity remained locked behind high monetary entry requirements and significant management fees for many years. ETFs like AGIX aim to remove those hurdles through the accessibility of the ETF wrapper.
“When we were designing our artificial intelligence ETF, AGIX, we noticed a lot of critical AI companies — especially large language model companies — still in their private stage. They’re called unicorns,” explained Derek Yan, senior investment strategist at KraneShares. Yan discussed AI and private equity investing in the recent Nasdaq Asset Allocation Summit held on the VettaFi platform.
The potential of such companies, locked behind the private equity barriers of entry, alongside improving liquidity in the secondary market, create a compelling investment case. AGIX is one of the first ETFs to include the ability to invest directly in private equity. Up to 15% of the fund’s portfolio may invest in private equity, similar to the amount that institutional investors allocate to the space.
“For financial advisors and individual investors, that level of allocation to the private side is probably more suitable,” Yan noted. AGIX recently announced its first such investment into Anthropic, which makes up about 5% of the fund currently.
Invest in AI in Both Public & Private Equity Markets With AGIX
AGIX offers high-conviction, concentrated exposure to artificial intelligence companies. The fund tracks the Solactive Etna Artificial General Intelligence Index that holds public as well as private artificial intelligence companies.
The strategy seeks to capture the breadth of the AI economy. This includes the opportunity set beyond the Magnificent Seven found in a number of subindustries. The strategy invests in companies involved in semiconductors, data centers, cloud companies, edge AI, large language models, and AI applications. Notably, the fund is also able to allocate to private artificial intelligence companies as well as public ones.
AGIX invests in three fundamental pillars of the artificial intelligence ecosystem. These include infrastructure, hardware, and applications. The index begins with a starting universe of approximately 3,000 companies before filtering for characteristics such as liquidity and market cap. It then screens for companies that fall within 12 AI-related industries.
Every security receives an AI exposure score, a proprietary formula that considers “AI readiness” as well as “AI relevance.” The highest-scoring companies make it into the index, and are further weighted by their AI exposure score as well as by market cap.
No single pillar makes up more than 40% of the total weight of the underlying index. The strategy is a high-conviction one, with between 40-50 securities at any given time. It also remains timely with current trends by rebalancing on a quarterly basis.
AGIX carries an expense ratio of 1.00%.
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