The stock market's robot revolution is here
- EquBot just launched the AI Powered Equity ETF (AIEQ), which uses IBM's Watson technology to construct a stock portfolio.
- The fund has outperformed the S&P 500 so far, but a much longer trading period is needed to assess whether it can truly offer market-beating returns.
The long-awaited rise of the machines is here, at least in the stock market.
The first artificial intelligence-powered exchange-traded fund launched on October 18. Called the AI Powered Equity ETF (ticker: AIEQ), it uses IBM's Watson supercomputing technology to analyze more data than humanly possible, all in the pursuit of building the perfect portfolio of 30 to 70 stocks.
The ETF ranks investments based on their "probability of benefiting from current economic conditions, trends, and world- and company-specific events" and picks those with the best chance at outperformance, according to a recent release.
And the technology enables it to do that while constantly analyzing information for 6,000 US-listed companies. The top three positions as of Friday were CIT Group, Penumbra and Genworth Financial.
The fund was founded by EquBot, which is a part of IBM's Global Entrepreneur program, and is offered to investors through a partnership with ETF Managers Group. EquBot initially sprouted from a discussion between the cofounders in an MBA classroom at UC Berkeley's Haas School of Business.
The ETF launch comes at a time when passive investment has never been hotter. The combined assets of US ETFs hit $3.1 trillion in August, increasing roughly $700 billion in a single year, according to Investment Company Institute data. And many of those strategies already employ computer-driven quantitative strategies.
So what sets AIEQ apart? Chida Khatua, CEO and co-founder of EquBot, argues that their technology is more advanced, which gives it a big advantage.
"As powerful as many algorithms underlying expensive quantitative hedge funds and other vehicles might be, unless they're also built with AI and machine learning baked right in, mistakes can be propogated and opportunities for outperformance can be missed," he said in the October 18 release.
In three days of trading, the fund has risen 0.8%, double the S&P 500 over the same period. What's more, the ETF has averaged about 193,000 units traded per day, a strong showing for a fledgling fund. It had around $3.2 million in assets on Friday afternoon.
Of course, a much longer time frame will be needed to assess whether the ETF is actually able to translate its massive computing power into market-beating returns. But so far, so good.