As most readers of this blog know, I am a fan of some aspects of an artificial intelligence (AI) methodology to insulate portfolio management from behavioral biases. One of my favorite vehicles for this is the AI Powered Equity ETF (AIEQ). What are the portfolio holdings today and what can we learn from them?
I downloaded all the holdings from last night and see some interesting positions. Some top holding names, like Alphabet (GOOGL), Amazon (AMZN) and Costco (COST), are expected, but others, like Estee Lauder (EL), are less expected. Looking at all the other larger positions in AIEQ reminds me of the “Peter Lynch” investment approach of buying names that “you know and use everyday.” The AIEQ list goes on to include Facebook, Mastercard, United Health, and Johnson & Johnson; certainly, household names!
From a top-down perspective, I was curious what investment factors are driving security selection? I used PortfolioVisualizer.com to calculate investment factor exposures in the current AIEQ portfolio. For the four major factors being Size, Value, Momentum, and Quality, I was surprised to see only a small 0.32 bias favoring the small cap Size factor and almost no bias to Momentum, Value or Quality. All of this while the AIEQ ETF produced a YTD total return of 4.43% beating the S&P 500 of 3.15%.
The AIEQ investment approach is carefully guarded, but from these statistics it appears that factor analysis is not part of the formula. From the AIEQ web site, the AI model is targeted to combine fundamental and technical methods to produce a better probability of capital appreciation at similar levels of risk of broad stock indices.