One of the most interesting things emerging in the investment realm is the use of artificial intelligence (AI) in portfolio management. There are a few exchange-trade funds (ETFs) that are managed with the assistance of AI, including AI Powered Equity (AIEQ), QRAFT AI-Enhanced U.S. Large Cap (QRFT), and others. Is there anything we can learn from them? What are their “best” ideas right now, as indicated by their top holdings?
AIEQ has been around since October 18, 2017. Since inception through October 17, 2019, it has produced a net cumulative total return of 16.2% compared to the S&P 500 (SPY) of 21.5%; quite a bit of a lag, though AIEQ has at times been ahead of SPY on and off over this time horizon. In fact, AIEQ is currently beating the S&P 500 on a YTD basis through October 17, 2019 with a return of 22.34% compared to 21.4% for SPY.
How do the top holdings for AIEQ compare with SPY? The usual suspects like Alphabet, Amazon, and J&J are in AIEQ’s top 10. No Microsoft, Apple, or Berkshire Hathaway; though they are in the AIEQ portfolio, just smaller weightings. Big positions in Intuit, Martin Marietta Materials, Thermo Fisher, Moody’s, Waste Management Corp, and NetApp round out the top 10. Year-to-date total returns for these top holdings have been impressive: Intuit, +36.4%; Martin Marietta, 56.24%; Thermo Fisher, 26.08%; Moody’s, 57.29%; Waste Management, 32.39%; and NetApp at -6.52%! Lots of big winners there!
Though AIEQ has a high reported turnover of 260%, most of these top holdings have been around since the beginning of the year; and held through the market downturn in May 2019. From a portfolio management perspective, I am happy to see consistency in overweighted positions reflecting a long term approach to “high conviction” holdings; holdings that warrant a high portfolio weighting. Not sure if the typical active “human” portfolio manager would be as wise. Let’s check back in six months to see how it is working out.