As if active portfolio managers didn't have enough challenges from computer-driven passive investing strategies, now machines are directly horning in on their territory.
San Francisco-based EquBot LLC is launching the first ever exchange-traded fund to use artificial intelligence, according to a company statement on Tuesday. Employing International Business Machines Corp.'s Watson platform, the AI Powered Equity ETF, ticker AIEQ, will attempt to mimic an army of equity research analysts working around the clock, according to Art Amador, co-founder of EquBot.
"There has been an explosion of information," Amador said by phone. "AI provides a more informed way of investing."
The fund, which is being run in partnership with ETF Managers Group of Summit, New Jersey, will use AI and machine learning to scan more than 6,000 U.S. publicly traded companies each day to create a diversified fund, Amador said. The program will parse regulatory filings, more than a million news stories, company management profiles, sentiment gauges and financial models to establish a portfolio of 30 to 70 stocks.
Once the stocks are chosen, a team of human managers at ETF Managers Group will rebalance the portfolio based on the selections -- theoretically, every day if the computer proposes changes.
"When something is in our portfolio, we know why it's in there," Amador said. "We have an investment thesis about that position, and we can explain all the reasons why we own it or all the reasons why we're going to get rid of it."