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AI Safety Concerns Surge: ETFs to Watch as Tech Faces New Risks
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Key Takeaways
AI safety concerns could add another headwind to the already challenged tech sector.
Investors may benefit from maintaining measured tech exposure and increasing diversification.
Investors can consider quality, low-volatility and international value ETFs amid uncertainty.
This year has proved challenging for investors, with persistent economic and geopolitical risks testing market resilience. Despite these headwinds, markets remained relatively resilient, with strong gains in the technology sector and the AI trade providing an important source of support.
However, that support could begin to fade as the AI trade faces another headwind. Growing concerns over the pace of AI development have prompted calls from major tech leaders, including Anthropic CEO Dario Amodei, for a more measured approach to AI advancement.
While a slowdown would not necessarily derail AI development, it could have broader market implications given the rapid pace of adoption, accelerating infrastructure buildout and massive capital investments flowing into the AI ecosystem. A moderation in the development of AI capabilities could create ripples across the technology ecosystem, potentially affecting companies and industries that have benefited from the surge in AI-related investment.
These concerns add to existing challenges facing the AI trade, including stretched valuations, growing scrutiny around Big Tech capital expenditures and concerns of AI-related circular financing arrangements.
AI Safety Concerns Add to Tech’s Challenges
Concerns over the potential risks of AI intensified last week after former Anthropic researcher Jacob Coxon warned that "people building AI earnestly believe that it could kill us all by the end of the decade," as quoted on Reuters.
Anthropic safety researcher Evan Hubinger added to the growing safety concerns, estimating a more than 10% chance that AI could “kill all humans” within the next 10 years, as quoted on CNBC. Anthropic CEO Dario Amodei called for a slower pace of advanced AI development, with OpenAI CEO Sam Altman and SpaceX CEO Elon Musk also backing the call.
Additionally, Altman said OpenAI has no plans to go public this year, pointing to growing AI safety concerns, CNBC reported, citing a Fortune interview.
At the same time, President Trump’s downplaying of AI safety concerns could further cloud an already uncertain outlook for the AI trade.
How Should Investors Navigate This?
With safety concerns gaining momentum, the AI trade faces a new and potentially significant headwind. The heavy concentration of U.S. markets and portfolios in technology stocks leaves investors particularly exposed to any reversal in the AI trade. A sustained pullback in tech could therefore amplify portfolio drawdowns and volatility.
However, calls for a slowdown do not necessarily signal the end of AI development. As both Amodei and Altman have emphasized, the aim is not to stop AI development altogether, as quoted on the abovementioned CNBC article. Instead, they point toward a more measured approach to AI development, with greater emphasis on safety, regulation and responsible deployment.
Companies are likely to continue investing in AI, although the pace of investment and development could moderate as businesses and policymakers place greater focus on managing the risks associated with the tech. The AI trade appears to be entering a new phase, with sustainable growth and responsible development becoming increasingly important alongside technological innovation.
For investors, this suggests that the appropriate response may not be to abandon AI and technology altogether, but to reassess the size and role of these exposures within a broader portfolio. Investors may want to maintain a measured exposure to the AI and technology trade rather than make an aggressive portfolio shift away from tech, based solely on the latest safety concerns.
ETFs to Consider
Below, we have highlighted a few funds that investors can consider in the current economic backdrop. That said, completely cutting tech exposure may not be prudent.
Looking beyond the technology sector, investors may consider adopting a defensive tilt to add greater stability and create a more balanced risk-return profile. With markets increasingly driven by headlines and rapidly shifting investor sentiment, maintaining adequate diversification could be particularly important in helping portfolios weather sharp swings in market conditions.
Quality ETFs
Amid market uncertainty, quality investing emerges as a strategic response, providing a buffer against potential headwinds. This approach prioritizes identifying firms with robust fundamentals, consistent earnings and lasting competitive strengths. Investing in such high-quality companies can mitigate volatility for investors.
Investors can look at funds like iShares MSCI USA Quality Factor ETF (QUAL - Free Report) and JPMorgan U.S. Quality Factor ETF (JQUA - Free Report) .
QUAL is both the largest and the most liquid fund, with a one-month average trading volume of about 851,000 shares and an asset base of $46.78 billion. Meanwhile, JQUA stands out as the cheapest option, charging an annual fee of 0.12%.
Low-Volatility ETFs
Low-volatility ETFs seek to provide a smoother investment experience by focusing on stocks that historically exhibit lower levels of market volatility. These funds commonly favor defensive sectors, including healthcare, utilities and consumer staples, where earnings and demand tend to remain more stable during uncertain periods. This makes them attractive for investors looking to balance market exposure with downside protection.
Investors can consider iShares MSCI USA Min Vol Factor ETF (USMV - Free Report) and Invesco S&P 500 LowVolatility ETF (SPLV - Free Report) .
Regarding annual fee, USMV is the cheapest option, charging 0.15%. With a one-month average trading volume of 2.01 million shares, SPLV is the most liquid option. USMV has gathered an asset base of $23.79 billion, the largest asset base among the other options.
Inverse Technology ETFs
Investors who remain cautious on the AI trade but do not want to significantly shift toward defensive assets may consider inverse technology ETFs as a tactical way to navigate potential near-term weakness.
Inverse and inverse-leveraged ETFs either create an inverse short position or a leveraged inverse short position in the underlying index through the use of swaps, options, futures contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a very short time, provided the trend prevails.
However, these funds run risks of huge losses compared with traditional funds. Investors should note that these products are best suited for short-term trading, as they are rebalanced daily.
Investors can consider ProShares UltraPro Short QQQ (SQQQ - Free Report) and ProShares Short QQQ (PSQ - Free Report) . There is no difference in fees among the funds, each charging an annual fee of 0.95%. SQQQ is the most liquid, with a one-month average trading volume of about 40.01 million shares.
International Value ETFs
With U.S. markets carrying significant exposure to the tech sector, investors may benefit from adding international equities to their portfolios to enhance geographic diversification. Beyond reducing reliance on U.S. tech stocks, international funds with a value tilt could offer an additional advantage in the current market environment.
Value ETFs focus on stocks characterized by strong fundamentals and robust financial health, which trade below their intrinsic value. Investors can consider Dimensional International Value ETF (DFIV - Free Report) and Avantis International Large Cap Value ETF (AVIV - Free Report) .
Financials represent the largest sector allocation across all of the above funds, with AVIV having the lowest exposure at 32%. Information technology, on the other hand, represents only a modest share of each portfolio, with AVIV holding the highest exposure at just 4%. Japan is the largest country exposure across all the funds, followed by the United Kingdom.
AVIV is the cheapest option, charging an annual fee of 0.25%. DFIV is both the largest and most liquid fund, with a one-month average trading volume of about 1.08 million shares and an asset base of $22.41 billion.
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AI Safety Concerns Surge: ETFs to Watch as Tech Faces New Risks
Key Takeaways
This year has proved challenging for investors, with persistent economic and geopolitical risks testing market resilience. Despite these headwinds, markets remained relatively resilient, with strong gains in the technology sector and the AI trade providing an important source of support.
However, that support could begin to fade as the AI trade faces another headwind. Growing concerns over the pace of AI development have prompted calls from major tech leaders, including Anthropic CEO Dario Amodei, for a more measured approach to AI advancement.
While a slowdown would not necessarily derail AI development, it could have broader market implications given the rapid pace of adoption, accelerating infrastructure buildout and massive capital investments flowing into the AI ecosystem. A moderation in the development of AI capabilities could create ripples across the technology ecosystem, potentially affecting companies and industries that have benefited from the surge in AI-related investment.
These concerns add to existing challenges facing the AI trade, including stretched valuations, growing scrutiny around Big Tech capital expenditures and concerns of AI-related circular financing arrangements.
AI Safety Concerns Add to Tech’s Challenges
Concerns over the potential risks of AI intensified last week after former Anthropic researcher Jacob Coxon warned that "people building AI earnestly believe that it could kill us all by the end of the decade," as quoted on Reuters.
Anthropic safety researcher Evan Hubinger added to the growing safety concerns, estimating a more than 10% chance that AI could “kill all humans” within the next 10 years, as quoted on CNBC. Anthropic CEO Dario Amodei called for a slower pace of advanced AI development, with OpenAI CEO Sam Altman and SpaceX CEO Elon Musk also backing the call.
Additionally, Altman said OpenAI has no plans to go public this year, pointing to growing AI safety concerns, CNBC reported, citing a Fortune interview.
At the same time, President Trump’s downplaying of AI safety concerns could further cloud an already uncertain outlook for the AI trade.
How Should Investors Navigate This?
With safety concerns gaining momentum, the AI trade faces a new and potentially significant headwind. The heavy concentration of U.S. markets and portfolios in technology stocks leaves investors particularly exposed to any reversal in the AI trade. A sustained pullback in tech could therefore amplify portfolio drawdowns and volatility.
However, calls for a slowdown do not necessarily signal the end of AI development. As both Amodei and Altman have emphasized, the aim is not to stop AI development altogether, as quoted on the abovementioned CNBC article. Instead, they point toward a more measured approach to AI development, with greater emphasis on safety, regulation and responsible deployment.
Companies are likely to continue investing in AI, although the pace of investment and development could moderate as businesses and policymakers place greater focus on managing the risks associated with the tech. The AI trade appears to be entering a new phase, with sustainable growth and responsible development becoming increasingly important alongside technological innovation.
For investors, this suggests that the appropriate response may not be to abandon AI and technology altogether, but to reassess the size and role of these exposures within a broader portfolio. Investors may want to maintain a measured exposure to the AI and technology trade rather than make an aggressive portfolio shift away from tech, based solely on the latest safety concerns.
ETFs to Consider
Below, we have highlighted a few funds that investors can consider in the current economic backdrop. That said, completely cutting tech exposure may not be prudent.
Looking beyond the technology sector, investors may consider adopting a defensive tilt to add greater stability and create a more balanced risk-return profile. With markets increasingly driven by headlines and rapidly shifting investor sentiment, maintaining adequate diversification could be particularly important in helping portfolios weather sharp swings in market conditions.
Quality ETFs
Amid market uncertainty, quality investing emerges as a strategic response, providing a buffer against potential headwinds. This approach prioritizes identifying firms with robust fundamentals, consistent earnings and lasting competitive strengths. Investing in such high-quality companies can mitigate volatility for investors.
Investors can look at funds like iShares MSCI USA Quality Factor ETF (QUAL - Free Report) and JPMorgan U.S. Quality Factor ETF (JQUA - Free Report) .
QUAL is both the largest and the most liquid fund, with a one-month average trading volume of about 851,000 shares and an asset base of $46.78 billion. Meanwhile, JQUA stands out as the cheapest option, charging an annual fee of 0.12%.
Low-Volatility ETFs
Low-volatility ETFs seek to provide a smoother investment experience by focusing on stocks that historically exhibit lower levels of market volatility. These funds commonly favor defensive sectors, including healthcare, utilities and consumer staples, where earnings and demand tend to remain more stable during uncertain periods. This makes them attractive for investors looking to balance market exposure with downside protection.
Investors can consider iShares MSCI USA Min Vol Factor ETF (USMV - Free Report) and Invesco S&P 500 Low Volatility ETF (SPLV - Free Report) .
Regarding annual fee, USMV is the cheapest option, charging 0.15%. With a one-month average trading volume of 2.01 million shares, SPLV is the most liquid option. USMV has gathered an asset base of $23.79 billion, the largest asset base among the other options.
Inverse Technology ETFs
Investors who remain cautious on the AI trade but do not want to significantly shift toward defensive assets may consider inverse technology ETFs as a tactical way to navigate potential near-term weakness.
Inverse and inverse-leveraged ETFs either create an inverse short position or a leveraged inverse short position in the underlying index through the use of swaps, options, futures contracts and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a very short time, provided the trend prevails.
However, these funds run risks of huge losses compared with traditional funds. Investors should note that these products are best suited for short-term trading, as they are rebalanced daily.
Investors can consider ProShares UltraPro Short QQQ (SQQQ - Free Report) and ProShares Short QQQ (PSQ - Free Report) . There is no difference in fees among the funds, each charging an annual fee of 0.95%. SQQQ is the most liquid, with a one-month average trading volume of about 40.01 million shares.
International Value ETFs
With U.S. markets carrying significant exposure to the tech sector, investors may benefit from adding international equities to their portfolios to enhance geographic diversification. Beyond reducing reliance on U.S. tech stocks, international funds with a value tilt could offer an additional advantage in the current market environment.
Value ETFs focus on stocks characterized by strong fundamentals and robust financial health, which trade below their intrinsic value. Investors can consider Dimensional International Value ETF (DFIV - Free Report) and Avantis International Large Cap Value ETF (AVIV - Free Report) .
Financials represent the largest sector allocation across all of the above funds, with AVIV having the lowest exposure at 32%. Information technology, on the other hand, represents only a modest share of each portfolio, with AVIV holding the highest exposure at just 4%. Japan is the largest country exposure across all the funds, followed by the United Kingdom.
AVIV is the cheapest option, charging an annual fee of 0.25%. DFIV is both the largest and most liquid fund, with a one-month average trading volume of about 1.08 million shares and an asset base of $22.41 billion.