Artificial Intelligence - Hybrid Investing
The methods profitable hedge funds and asset management firms employ to pick their stocks can generally be classified into two main categories: bottom-up approach and top-down approach.
A bottom-up investor focuses on the analysis of individual stocks and companies and de-emphasizes macroeconomic trends [1] and industrial patterns. With more focus on fundamental data, investors may be able to choose stocks that perform well even if the industry does not.
A top-down investor focuses first on macroeconomic factors such as the geopolitical, industrial, and sectorial datasets, and then works her way to examine micro factors such as fundamental data. It may be considered a time-efficient investment strategy, but top-down investors can also miss out on potentially lucrative individual investments.
Although the two methods are entirely opposite in terms of structural hierarchy and order of due diligence, they share a similar goal, which is earning potential alpha [2] (abnormal profits).
They both have their hardships, though, with bottom-up investors having to grind hours of due diligence in an attempt to find the right stock and top-down investors salivating at the lost investment opportunities that were filtered out in their earlier stages of research.
With the growth of fintech and the rise of artificial intelligence, some houses are utilizing AI to synergize the strengths and minimize the weaknesses of the two approaches. Qraft Technologies Inc., for example, is a fintech firm that creates and manages exchange-traded funds based on AI. Its proprietary AI technology uses machine learning to analyze both macro and fundamental data at unprecedented speed.
More on Qraft’s AI Technology…
Qraft seeks to harness the power of technology to build and construct portfolios. By capturing both macro trends and fundamental data, Qraft’s AI may find high alpha factors to form an investment strategy that brings potential excess returns. When constructing portfolios, applying artificial intelligence may help streamline various aspects of the investment process that are deemed labor-intensive and expensive traditionally.
AI can analyze large amounts of data objectively and identify complicated patterns in a short period of time. As such, Qraft’s AI can explore the vast search universe and narrow down valid factor candidates with an aim to draw up effective investment strategies. It looks to automatically test various factors to determine which factors can potentially provide strong performance.
Qraft currently has four actively managed ETFs listed on the New York Stock Exchange:
AI-Enhanced U.S. Large Cap ETF (NYSE: QRFT) seeks to enhance the S&P 500 by spotting alpha factors.
AI-Enhanced U.S. Large Cap Momentum ETF (NYSE: AMOM) looks to capitalize on the movement and momentum of individual stocks.
AI-Enhanced U.S. High Dividend ETF (NYSE: HDIV) employs deep learning with an aim to find the optimal balance between capital appreciation and high dividend yield.
AI-Enhanced U.S. Next Value ETF (NYSE: NVQ) utilizes AI to calculate the value of intangible assets to seek capital appreciation.
Qraft AI ETFs Total Return vs Benchmark
The performance data quoted represents past performance. Past performance does not guarantee future results. Current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost. Returns less than one year are not annualized. Performance data current to the most recent month end may be obtained by visiting qraftaietf.com.
For Standardized Performance of the Funds mentioned in the table please click their respective ticker: QRFT, AMOM, HDIV, NVQ.
Market Price: The current price at which shares are bought and sold. Market returns are based upon the midpoint of the last bid/ask spread at 4:00 PM Eastern Time.
NAV: The dollar value of a single share, based on the value of the underlying assets of the fund minus its liabilities, divided by the number of shares outstanding. Calculated at the end of each business day.
Annual Expense Ratio is 0.75%.
The investment process used by the Qraft ETFs relies on the proprietary artificial intelligence security selection process that extracts patterns from analysing data developed by Qraft Technologies. While it is anticipated the Adviser (Exchange Traded Concepts LLC) will purchase and sell securities based on recommendations of QRAFT AI, the Adviser has full discretion over investment decisions for the Fund.
[1] Macroeconomic Trends represent a meaningful economic trend that can be mapped to the performance of tradable assets or derivatives positions. It can be based on three complementary types of information: economic data, financial market data, and expert judgement.
[2] Alpha is a measure of the active return on an investment, the performance of that investment compared with a suitable market index.
S&P 500 Momentum Index is designed to measure the performance of securities in the S&P 500 universe that exhibit persistence in their relative performance.
S&P 500 Index is a free-float weighted measurement stock market index of 500 of the largest companies listed on stock exchanges in the United States.
S&P 500 Value Index is designed to measure value stocks using three factors: the ratios of book value, earnings, and sales to price.
Morningstar Dividend Yield Focus TR tracks high-yielding, dividend-paying, U.S.-backed securities screened for superior company quality and financial health.