Rise Of The Machines With This ETF

Robots haven't taken over the world, at least not yet, but one exchange traded fund powered by artificial intelligence is performing pretty well. The AI Powered Equity ETF AIEQ is higher by nearly 19% year to date.

What Happened

Backed by IBM's famous Watson supercomputer, AIEQ, which turns two years old in October, is an actively managed ETF using artificial intelligence in its stock identification process.

“The fund applies proprietary analytical algorithms to artificial intelligence (AI) technology, which can process over one million pieces of information per day, to build predictive financial models on approximately 6,000 U.S. companies,” according to ETFMG.

This year, AIEQ's methodology is working as it is outperforming the S&P 500 by about 160 basis points.

Why It's Important

AIEQ holds 130 stocks, none of which exceed weights of 3.54%, indicating the AI methodology backing the fund avoids concentration risk.

“The idea is to recognize patterns across management teams, across financial statements, across news [and] things like social media, to identify trends that are occurring in the marketplace and to capture the companies that are going to appreciate the most over the next six to 12 months,” said EquBot co-founder Art Amador in an interview with CNBC.

At the end of the second quarter AIEQ, allocated 27.35% of its weight to the technology sector and a combined 26.79% of its weight to the financial services and health care sectors. While defensive sectors, such as utilities and real estate, have been performing well this year, AIEQ is currently lightly allocated to those groups.

“The machine behind the ETF reads through over 1 million pieces of data per day including SEC filings, earnings reports, news stories and social media posts to determine which stocks it thinks are heading higher,” according to CNBC.

What's Next

AIEQ has an international counterpart, the AI Powered International Equity ETF AIIQ. The bulk of AIIQ's geographic exposures are developed markets, meaning the MSCI EAFE Index is a relevant comparison here. AIIQ is up 19.42% year to date, beating that index by more than 1,100 basis points.

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