AI-powered stock funds bet bots can pick stocks faster and better than humans

Capitalizing on the growing interest in artificial intelligence, a handful of fund managers are exploring the potential of AI-powered exchange traded funds (ETFs) to select stocks. These funds, which rely solely on AI-driven models to manage research and stock selection, currently manage only about $30 million of the industry's $17 trillion in assets, making up a minuscule portion of the overall market.

However, as more asset managers begin integrating AI into their investment processes, even if not always transparent to investors, these AI-powered funds are beginning to outperform the market. Tal Schwartz, founder of Ai Funds, has launched a fund that harnesses a proprietary AI learning algorithm to analyze decades of market data, attracting less than $20 million in assets since its August 21 launch.

Since inception, the fund has delivered a 2.7% return, outpacing the S&P 500's 1.1% gain during the same period. Other AI-enhanced ETFs launched by firms such as FinQ and Pacer have also proven successful, with some even outperforming the S&P 500 by a significant margin. While the short track records and above-average fees of these funds may deter some investors, advisors acknowledge that performance will ultimately prove the effectiveness of this AI-driven approach.