Investing in the “Early Innings” of the AI Value Chain
For ETF investors, the main question is not whether AI is important, but how to access it without overcommitting to a narrow part of the market. A thematic ETF can be useful as a portfolio sleeve, but it should be understood as a targeted exposure rather than a substitute for broad equity diversification. That distinction matters when an ETF is built around a fast-changing innovation cycle and a relatively small set of holdings.
Concentration is both the point and the risk. AI-themed strategies often lean on a limited group of companies that can change quickly as technology shifts from infrastructure to software to automation. For long-term investors, that means the opportunity set may evolve faster than traditional sector funds, but it also means the portfolio can become vulnerable if leadership narrows, valuations stretch, or market enthusiasm rotates away from the theme.
Active management adds a second layer of decision-making. In a theme like AI, the relevant question is not just which industry to own, but when a business still fits the investment case. That makes periodic review especially important: investors should know whether the fund is designed to refresh holdings aggressively, how concentrated it is, and whether it overlaps heavily with existing mega-cap technology exposure.
For portfolio construction, the practical use case is clearer than the headline story. An AI ETF can work as a satellite allocation for investors seeking thematic exposure, but it still needs guardrails. Checking overlap, position sizing, and the role the fund plays alongside core equity holdings may matter more than chasing the most visible names in the category.
A Legacy of Thematic Expertise
While Pictet is a relatively new entrant to the Original Postictet-partners/" target="_blank" rel="noopener" shape="rect">U.S. ETF market, Seiji Nishimura, head of US Intermediaries, reminded attendees of the firm’s deep roots. Headquartered in Switzerland and managing over $330 billion in assets, Pictet has been a pioneer in thematic investing since the mid-1990s. “We’ve been doing thematic equities for over three decades,” Nishimura noted. This was in reference to the firm’s track record which includes early entries into water, clean energy, and robotics. Its private ownership structure allows for a long-term focus on structural trends rather than quarterly market noise.The 4 Phases of AI Innovation
The session’s core framework came from Anjali Bastianpillai, senior client portfolio manager, in the Thematic Equities team at Pictet. Bastianpillai described an “S-curve” approach to identifying opportunities across four phases of AI development.
The first phase — core infrastructure — centers on the computing backbone of AI, including advanced GPUs, CPU accelerators, and significant capital spending by hyperscalers such as Meta and Microsoft.
The second phase, “AI on the edge,” reflects the shift toward running models closer to end users, including on smartphones and personal computers. The third phase focuses on applications, marking a transition from generative AI to so-called agentic AI, where software agents can execute code and manage digital identities.
The fourth phase extends into physical AI and automation, encompassing areas such as robotaxis, humanoid systems, and robotic surgery.
Moving Beyond the “Mag 7”
A recurring theme throughout the discussion was concentration risk in traditional benchmarks. Against that backdrop, PBOT is positioned as a more concentrated portfolio, typically holding between 40 and 60 stocks. The strategy relies on fundamental research, including 600 to 700 meetings each year to vet leadership and innovation. It is specifically designed to adjust holdings as the competitive landscape evolves.
“You want that agility to pick the right stocks at the right time and remove those that don’t really compete anymore,” Bastianpillai explained.
Strategic Allocation for Advisors
For U.S. advisors already heavily exposed to core growth or “Magnificent 7” names, Nishimura suggested three ways to utilize PBOT including:- Satellite Allocation: To access AI as a long-term growth theme for greater alpha potential.
- Core Complement: To provide a more diversified opportunity set than concentrated large-cap tech exposure.
- Smarter Exposure: Using active management to stay ahead of a rapidly changing trend rather than relying on “autopilot” passive strategies.
Addressing Macro Risks
In response to concerns about geopolitical tensions and labor shortages, Pictet sees these pressures as long-term tailwinds for the theme. Trends like reshoring and nearshoring are fueling major investment in semiconductor fabs and industrial robotics. Especially as countries push for greater supply chain independence. And while the AI race heats up among players like OpenAI, Anthropic, and xAI, Pictet is focused less on the front-runners and more on the underlying tech stack — especially the software companies enabling security and governance.Enjoyed this article? Sign up for our newsletter to receive regular insights and stay connected.