Revolutionizing Investment Management: A Five-Year Analysis of Qraft's AI-Enhanced ETFs
In November of 2022, the launch of ChatGPT took the world by storm, showcasing capabilities of AI that had not been seen before. However, the use of AI has been around much longer, including in the investing world. This month, one of the first ETFs launched in the U.S. using AI to select the holdings in the portfolio celebrate their five-year track record.
Qraft AI-Enhanced Large Cap ETF (QRFT) and Qraft AI-Enhance Momentum ETF (AMOM) were launched in May of 2019, and have been a case study in how AI technology can be applied to investing. The deployment of AI algorithms for data analysis, investment decision-making, and portfolio optimization is reshaping the contours of asset management.
Comparative Performance: QRFT and AMOM Versus Traditional Funds
The AI-centric strategies employed by QRFT and AMOM have translated into compelling performance metrics over the past half-decade. QRFT has outpaced the SPDR S&P 500 ETF (SPY), by a margin of 11.6% (Full standardized performance of SPY can be found here), registering a cumulative return of 114.6% (Full standardized performance of QRFT can be found here). Similarly, AMOM has demonstrated robust performance, surpassing the iShares MSCI USA Momentum Factor ETF (MTUM), by 35.2% (Full standardized performance of MTUM can be found here), with a cumulative return of 112.6% (Full standardized performance of AMOM can be found here).
Conversely, AIEQ (see ‘Comparison of Material Differences’ section below), an AI ETF powered by IBM Watson has significantly underperformed QRFT, lagging behind by -69.57% over the same period (Full standardized performance of AIEQ can be found here). Over the five year period, the funds have seen the Covid drawdown of 2020, meme stock craze of 2021, and the 2022 drawdown from record inflation and interest rate hikes. Let’s explore some of the key highlights from the last five years.
Sector Allocations (5-Year Average)
QRFT has demonstrated strong sector preferences over the past five years, with a predominant allocation to Information Technology (30.9%), reflecting the pivotal role of tech giants in driving market performance. Additionally, QRFT has maintained a notable allocation to Health Care (16.9%), benefiting from innovations and advancements in healthcare technologies, particularly during the COVID-19 pandemic, when healthcare companies experienced substantial returns from vaccine development. The Consumer Discretionary sector (11.2%) has also been favored by QRFT, reflecting consumer spending trends and the resilience of select retail and leisure companies.
Similarly, AMOM has exhibited a pronounced tilt towards Information Technology (26.9%), capturing the growth potential of tech companies. Furthermore, Consumer Discretionary (21.5%) stocks have been a focal point for AMOM, aligning with the fund's momentum-driven strategy. Moreover, Health Care (13%) has emerged as another significant sector for AMOM, particularly amid the COVID-19 pandemic.
Holdings (5-Year Average)
AMOM has established a portfolio with notable top holdings, with significant weightings allocated to key companies such as Apple Inc (7.45%), Walmart Inc (6.22%), Meta Platforms Inc (6.05%), NVIDIA Corporation (5.22%), and Home Depot Inc. (5.16%). Conversely, QRFT's top holdings include Microsoft Corp (3.65%), Apple Inc (3.57%), Amazon.com Inc (3.07%), Alphabet Inc (2.30%), and Meta (1.64%). (Find the full official holdings here.)
QRFT, with 300 holdings, also had companies that have been mainstays in the portfolio since its inception. These include Advanced Micro Devices Inc (0.66%), Intuit Inc. (0.65%), Accenture PLC (0.58%), Merck & Co Inc (0.52%), and Texas Instruments Inc (0.50%). (Find the full official holdings here.)
Conclusion
In summary, both QRFT and AMOM have led the charge in bringing innovation to investing over the last five years, demonstrating the possibilities that can be imagined with AI. While past performance does not guarantee future returns, both funds have seen several different market regimes over the last five years, giving investors a chance to see how the technology adapts to an ever-changing market. As we continue to innovate and harness the capabilities of AI, we remain committed to driving continued growth and value for our investors.
Disclaimer for SPY
For standardized performance and performance to the most recent month-end for the SPDR S&P 500 ETF Trust (SPY), please click here.
QRFT is a broadly diversified, actively managed, multi-factor strategy ETF designed to outperform the S&P 500 Index. SPY is the flagship ETF tracking the S&P500 Index, and as such substantially overlaps QRFT in security exposure.
All funds are managed differently and do not react the same to economic or market events. The investment objectives, strategies, policies, or restrictions of other funds may differ and more information can be found in their respective prospectuses. Therefore, we generally do not believe it is possible to make direct fund to fund comparisons in an effort to highlight the benefits of a fund versus another similarly managed fund.
Disclaimer for MTUM
For standardized performance and performance to the most recent month-end for the iShares MSCI USA Momentum Factor ETF (MTUM), please click here.
AMOM is an actively managed ETF, combining targeted momentum factor exposure with security selection, and is designed to outperform a passive momentum exposure. MTUM is the flagship index ETFs tracking a passive momentum exposure. Both ETFs broadly draw from the same universe of large-cap US stocks.
All funds are managed differently and do not react the same to economic or market events. The investment objectives, strategies, policies, or restrictions of other funds may differ and more information can be found in their respective prospectuses. Therefore, we generally do not believe it is possible to make direct fund to fund comparisons in an effort to highlight the benefits of a fund versus another similarly managed fund.
Disclaimer for AIEQ
For standardized performance and performance to the most recent month-end for the Amplify AI Powered Equity ETF (AIEQ), please click here.
QRFT is a broadly diversified, actively managed, multi-factor strategy ETF designed to outperform the S&P 500 Index. AIEQ is an ETF tracking the AI Powered Equity Index that runs on the IBM Watson platform and rebalances monthly. QRFT broadly draws from a universe of large-cap US stocks, while AIEQ broadly draws from a universe of the total stock market.
All funds are managed differently and do not react the same to economic or market events. The investment objectives, strategies, policies, or restrictions of other funds may differ and more information can be found in their respective prospectuses. Therefore, we generally do not believe it is possible to make direct fund to fund comparisons in an effort to highlight the benefits of a fund versus another similarly managed fund.
Comparison of Material Differences
QRAFT AI-Enhanced US Large Cap ETF (QRFT)
Investment Objective: Capital Appreciation
Costs & Expenses: 0.75%
Liquidity: Because the Fund is an ETF, only a limited number of institutional investors (known as “Authorized Participants”) are authorized to purchase and redeem shares directly from the Fund. In addition, there may be a limited number of market makers and/or liquidity providers in the marketplace. To the extent either of the following events occur, shares of the Fund may trade at a material discount to their net asset value (“NAV”) per share and possibly face delisting: (i) Authorized Participants exit the business or otherwise become unable to process creation and/or redemption orders and no other Authorized Participants step forward to perform these services, or (ii) market makers and/or liquidity providers exit the business or significantly reduce their business activities and no other entities step forward to perform their functions.
Safety: The fund is subject to risks including, but not limited to common stock risk, issuer-specific risk, large capitalization risk, limited authorized participants, market makets, and liquidity providers risk, management risk, market risk, model and data risk, new/smaller fund risk, non-diversificaiton risk, operational risk, portfolio turnover risk, sector focus risk, and trading risk.
Guarantees or Insurance: An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency.
Fluctuation of Principal or Return: As with all funds, a shareholder is subject to the risk that his or her investment could lose money.
Tax Features: Distributions from ETFs are subject to taxation.
SPDR S&P 500 ETF Trust (SPY)
Investment Objective: The Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500® Index (the “Index”).
Costs & Expenses: 0.09%
Liquidity: As with all exchange-traded funds, Fund Shares may be bought and sold in the secondary market at market prices. The trading prices of Fund Shares in the secondary market may differ from the Fund’s daily net asset value per share and there may be times when the market price of the shares is more than the net asset value per share (premium) or less than the net asset value per share (discount). This risk is heightened in times of market volatility or periods of steep market declines.
Safety: The fund is subject to risks including, but not limited to, passive strategy/index risk, index tracking risk, and equity investing risk.
Guarantees or Insurance: An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
Fluctuation of Principal or Return: As with all investments, there are certain risks of investing in the Trust, and you could lose money on an investment in the Trust.
Tax Features: The Trust will make distributions that are expected to be taxable currently to you as ordinary income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account.
QRAFT AI-Enhanced US Large Cap Momentum ETF (AMOM)
Investment Objective: Capital Appreciation
Costs & Expenses: 0.75%
Liquidity: Because the Fund is an ETF, only a limited number of institutional investors (known as “Authorized Participants”) are authorized to purchase and redeem shares directly from the Fund. In addition, there may be a limited number of market makers and/or liquidity providers in the marketplace. To the extent either of the following events occur, shares of the Fund may trade at a material discount to their net asset value (“NAV”) per share and possibly face delisting: (i) Authorized Participants exit the business or otherwise become unable to process creation and/or redemption orders and no other Authorized Participants step forward to perform these services, or (ii) market makers and/or liquidity providers exit the business or significantly reduce their business activities and no other entities step forward to perform their functions.
Safety: The fund is subject to risks including, but not limited to common stock risk, issuer-specific risk, large capitalization risk, limited authorized participants, market makers, and liquidity providers risk, management risk, market risk, model and data risk, new/smaller fund risk, non-diversification risk, operational risk, portfolio turnover risk, sector focus risk, and trading risk.
Guarantees or Insurance: As with all funds, a shareholder is subject to the risk that his or her investment could lose money.
Fluctuation of Principal or Return: As with all funds, a shareholder is subject to the risk that his or her investment could lose money.
Tax Features: Distributions from ETFs are subject to taxation.
Behavioral Bias: Behavioral biases are irrational beliefs or behaviors that can unconsciously influence our decision-making process. Emotional biases involve taking action based on our feelings rather than concrete facts, or letting our emotions affect our judgment. Cognitive biases are errors in our thinking that arise while processing or interpreting the information that is available to us.
iShares MSCI USA Momentum Factor ETF (MTUM)
Investment Objective: The iShares MSCI USA Momentum Factor ETF (the “Fund”) seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks exhibiting relatively higher price momentum.
Costs & Expenses: 0.15%
Liquidity: Only authorized participants (“APs”) may engage in creation or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs and such APs have no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active trading market for the Shares. This risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized settlement system. In that case, Aps may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other market participants), which only a limited number of APs may be able to do. In addition, to the extent that Aps exit the business or are unable to proceed with creation and/ or redemption orders with respect to the Fund and no other AP is able to step forward to create or redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade at a premium or discount to the Fund’s net asset value (“NAV”) and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading volumes, may increase this risk. The Fund faces numerous market trading risks, including the potential lack of an active market for the Shares, losses from trading in secondary markets, and disruption in the creation/redemption process of the Fund. Any of these factors may lead to the Shares trading at a premium or discount to the Fund’s NAV.
Safety: The fund is subject to risks including, but not limited to, Authorized Participant Concentration risk, equity risk, index risk, industry concentration risk, healthcare sector risk, issuer-specific risk, market risk, market trading risk, momentum investing risk, non-correlation risk, non-diversified fund risk, and operational risk.
Guarantees or Insurance: An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency.
Fluctuation of Principal or Return: As with all funds, a shareholder is subject to the risk that his or her investment could lose money.
Tax Features: The Fund’s distributions generally are taxed as ordinary income, capital gains, or some combination of both, unless you are investing through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account; in which case your distributions may be taxed as ordinary income when withdrawn from such account.
AI Powered Equity ETF (AIEQ)
Investment Objective: The AI Powered Equity ETF (the “Fund”) seeks capital appreciation.
Costs & Expenses: 0.75%
Liquidity: The Fund has a limited number of financial institutions that may act as APs. In addition, there may be a limited number of market makers and/or liquidity providers in the marketplace. To the extent either of the following events occur, Shares may trade at a material discount to net asset value (“NAV”) and possibly face delisting: (i) APs exit the business or otherwise become unable to process creation and/or redemption orders and no other APs step forward to perform these services, or (ii) market makers and/or liquidity providers exit the business or significantly reduce their business activities and no other entities step forward to perform their functions.
Safety: The fund is subject to risks including, but not limited to, portfolio turnover risk, REIT investment risk, models and data risk, sector risk, smaller companies risk, equity market risk, associated risk of investments in SPAC’s, cash and cash equivalents risk, ETF risk, management risk, natural disaster/epidemic risk, and securities lending risk.
Guarantees or Insurance: An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency.
Fluctuation of Principal or Return: As with all funds, a shareholder is subject to the risk that his or her investment could lose money.
Tax Features: The distributions made by the Fund generally are taxable to the Fund’s shareholders, and will be taxed as ordinary income, qualified dividend income, or capital gains (or a combination thereof), unless your investment is in an IRA or other tax-advantaged account. However, subsequent withdrawals from such IRA or other tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific tax situation.