AI-focused investment funds have failed to outperform other technology sectors, delivering average returns of just 2.5% over the past year compared to 4.3% for generalist tech funds, shows research by leading asset management company, Bowmore Asset Management.
The best performing tech sector funds were video gaming funds with average returns of (28.8%) and fintech funds with average returns of (17%) over the last 12 months.
Following a period of intense investor excitement over AI, the sector took a sharp blow in January following the release by DeepSeek of its AI powered chatbot. The launch of DeepSeek’s chatbot crystalised concerns over soaring valuations in the sector and saw a sharp sell-off in shares in companies such as Nvidia.
Bowmore explains that the underperformance of AI funds has also been because a number of these funds have weightings in robotics companies, such as Japanese automation firms Yaskawa and Keyence, whose shares have performed poorly over the past year. For example, Yaskawa is down by 35.6% in the last year.
Jonathan Webster-Smith, Chief Investment Officer at Bowmore, says: “AI remains a hugely exciting sector but it pays not to be too overweight in a sector and certainly not a sector where it becomes hard to justify valuations.”
“The poor performance of some AI funds, due to their exposure to robotics companies, also shows why investors need to look ‘under the bonnet’ before committing their money to a fund.”
The research shows that AI-focused funds have underperformed compared to a broad range of specialist tech funds. Digital payments (2.8%), cloud computing (2.9%), and cybersecurity (12.4%) have all outperformed AI.
Jonathan adds: “AI companies had seen such a strong run in their share price that the sector had tempted investors away from some of their core principles such as diversification.”
“There are still plenty of exciting opportunities in technology but the risk appetite of most investors means they may be better taking a more generalist approach to tech, rather than being too concentrated in one or two shares or even one subsector of tech.”
Performance of tech-focused funds over last twelve months
| ETF focus | YTD | 1 year |
| Video Gaming | 2.01 | 28.8% |
| Fintech | -5.88 | 17.0% |
| Cybersecurity | -0.13 | 12.4% |
| Generalist | -6.28 | 4.3% |
| Cloud computing | -11.68 | 2.9% |
| Payments | -10.00 | 2.8% |
| AI | -2.26 | 2.5% |
| Autonomous/electric vehicles | 1.05 | 1.2% |
| Semiconductors | -6.07 | -1.4% |
| Robotics | -1.89 | -2.5% |
Year end March 20 2025
