This robot-powered ETF beats the market – here's how it works

It's the age-old battle: the man against the machine.

Artificial intelligence and machine learning (see: robots) are spreading slowly in all sectors of the market, from manufacturing to health care, through agriculture and tomato picking.

A.I. is even imposed in the investment world, Morgan Stanley having used in-depth learning to test and tweak the investment strategies of its badysts.

And, now, he is infiltrating the world of exchange-traded funds with a new EquBot product: the AI ​​Powered Equity ETF, the AIEQ ticker, up 19% since the beginning of the year compared to the gain 17% of the S & P 500.

"It is powered by IBM Watson," said CNBC's "ETF Edge," the co-founder and chief operating officer of EquBot, Art Amador.

"The idea is to recognize trends in management teams, financial statements, news [and] elements such as social media, to identify trends in the market and to capture the companies that will experience the greatest appreciation over the next six to twelve months, "he said.

The function is similar to that used by Morgan Stanley to strengthen the calls of its badysts. The machine behind the ETF reads over a million data per day, including SEC filings, results reports, news stories and social media posts, to determine the actions which, according to him, will go up, said Amador.

"What interests us is the way the market determines the prices of different companies, different sectors," he said. "As the data changes, news or financial information could become more important – we care about what is rewarded in the marketplace."

Over time, the bot becomes smarter. When equities, including AIEQ, collapsed in the fourth quarter of 2018, the ETF was rebalancing and recovering high-quality securities such as Coupa Software, up 117% this year, to pointed out the chief of operations.

For ETF experts such as Todd Rosenbluth, Senior Director of ETF and CFRA Mutual Fund Research, this ETF – which counts Amazon, Alphabet, the tax giant Intuit and the Whiskey maker Brown -Forman among its major holdings – can offer investors a valuable insight into short-term strategy.

"Because this is updated potentially every day, knowing what's in it [and] this transparency can help an investor understand what is changing day by day, from week to week, from month to month, because it really influences the underlying holdings for the performance of the ETF, "he said in a statement. same interview for "ETF Edge".

Tim Seymour, founder and chief investment officer of Seymour Asset Management, agreed.

"I think that having an artificial intelligence approach to find companies that are also evolving on the basis of dynamics and fundamentals is quite interesting," he said.

AIEQ lost nearly 2% during Friday's trading session.

Warning