Along the second path of implementation in the AI field is the use of computers to select stocks using quantitative reasoning. This is the genesis behind The AI Powered Equity ETF (AIEQ). The fund promotes the ability go to beyond traditional “smart beta” ETFs by owning a select group of 40-70 stocks chosen through many criteria.
The computer-driven selection methodology analyzes thousands of companies to optimize portfolio exposure to try and beat the market. The fund does note that it will likely experience similar levels of volatility versus its benchmark.
Despite its namesake, AIEQ doesn’t just invest in technology stocks. It has holdings in companies such as Amazon.com Inc (AMZN,) TRowe Price Group (TROW), and CIT Group Inc (CIT).
It’s notable that AIEQ has already accumulated over $150 million of capital since its October 2017 inception. That’s no small feat for an independent ETF with an above-average expense ratio of 0.75%. Clearly there is pent up demand for stock picking strategies that eschew a human bias.
Other ETFs are starting to realize the power (either real or conceived for marketing purposes) of artificial intelligence as well. The newly released Innovation Shares NextGen Protocol ETF (KOIN) owns a select group of block chain-related stocks. Its prospectus includes multiple references to algorithmic selection criteria based on many independent factors. The jury is still out on whether this will lead to better real-world performance or is just simply a facet of the underlying index.
The Bottom Line
Investors love a good story to get behind and artificial intelligence has become a burgeoning theme in the ETF industry. These strategies allow for two ways to attack this field through diversified investment vehicles that are liquid and easy-to-trade. While expense ratios in these funds are on the high side for the industry, their unique positioning will engender a modest premium in expenses.
This article was republished with permission by FMD Captital.