Artificial Intelligence Powered ETF's
Artificial intelligence continues its advance into the financial advisory space. While opinions are mixed on the extent to which it will replace human financial advisors, the overwhelming consensus is that AI is here to stay in the financial field. Humans and machines will increasingly work together for portfolio optimization. The idea of machine learning and AI’s ability to review and process vast amounts of data, unlike anything a human could possibly attempt, is fascinating. In the financial space and in the case of Equbot and its AI powered ETF’s, that means computers are constantly reviewing and processing millions of news articles, reports and other sources for fund optimization. Equbot technology has built financial models using AI to analyze over 15,000 publicly traded companies. According to the company, it functions as the equivalent of 1,000 research analysts working around the clock. The amount of data capable of being processed and analyzed is mind boggling!
Equbot’s AI Powered Equity ETF (NASDAQ:AIEQ) typically consists of 40-70 companies but analyzes and compares close to 6,000 US companies daily to determine what the optimum mix in the fund. The ETF technology runs on the IBM Watson computing platform and utilizes Google’s Deep Mind. As at June 5, 2019, the top ten holdings in the Fund were: Alphabet, SS&C Technologies Inc. (software for financial services industry), Netapp Inc. (cloud computing), Fastenal Co. (industrial supplies, fasteners and safety equipment), Amazon, Johnson and Johnson, Brown Forman Corp. (spirits and wine), Apple, Amgen Inc. (biopharmaceuticals) and Costco. This is an interesting mix of companies and perhaps one that is unexpected. Aside from the usual companies of Alphabet, Amazon, Costco, etc. that find their way into so many funds, there are a few companies in that mix that do not seem to appear often (Fastenal Co., Brown Forman Corp. or SS&C Technologies Inc. as examples). This may in fact be what is most fascinating about the use of AI in this space - what is it about these companies that AI has picked up as being great stock picks? What information in the data has it gleaned from its review that makes these companies stand out? The technology looks at what is supposed to happen in a particular sector and dives in looking at all financials and information including what is being said on social media. The ability for a human to synthesize all of that information into something useful from a stock picking point of view would be impossible.
The annualized return of the AIEQ ETF since inception has been around 9% and its expense ratio is 0.77%. After a dismal 2018, the return for AIEQ is looking up in 2019 so far beating the S&P 500 with a return of 24%. The CEO of Equobot, Chida Khatua, was recently named a Business Insider Top 100 people who are transforming business. AI seems made for the financial advisory industry; its ability to map out patterns and trends largely free of bias will prove to be invaluable in this area.
*** Top photo by Evegeniy Sholokh @unsplash