New ETF has robots pick investments

A new fund will let robots pick stocks. The AI Powered Equity Exchange-Traded Fund, which launched in the US on Wednesday, will use IBM Corp’s Watson artificial intelligence technology to pick several dozen stocks with potential to beat the market, the fund’s backers say.

The actively managed fund chooses stocks based on a set of rules created by EquBot LLC that uses artificial intelligence to analyse up to 10 years of data on thousands of stocks, including market sentiment, regulatory filings, news articles and social media posts.

It ranks each company based on the forecasted probability that each will profit from current economic conditions and world events. “There has been an explosion of information,” Art Amador, co-founder of EquBot, said in an interview.

The explosion of data from the internet and elsewhere needs to be processed objectively, he said. “Humans do not have the capacity or the retention rate to do that.” AI involves computers combing through troves of raw data to recognise patterns and predict outcomes, and joins a set of technologies displacing traditional — human — equity analysis. Index-tracking ETFs have grown popular for letting investors trade entire markets as easily as a single stock, with no research necessary.

Even investors hoping to beat the market have increasingly turned to algorithms to pick stocks with attractive prospects. Starting in 2019, the Chartered Financial Analyst exam that is a respected license for portfolio managers will add questions on artificial intelligence, automated investment services and mining unconventional sources of data.

The fund technically does have two human managers, Timothy Collins and Travis Trampe of ETF Managers Group LLC, though they will be “primarily making purchase and sale decisions based on information” from the computer model, according to the fund’s offering documents filed with the US Securities and Exchange Commission. The fund’s managers said certain activities, including buying stocks that are not easily traded, still need to be done by people.