The world of finance is on the cusp of a revolution with the emergence of Artificial Intelligence (AI) in portfolio management. A new ETF, paying homage to Jesse Livermore, one of the early 20th century’s most legendary stock traders, has been launched by Intelligent Alpha, an independent registered investment adviser built around large-language AI models.
The Idea Behind the ETF
Intelligent Alpha was founded last year when its CEO, Gene Munster, started experimenting with ChatGPT to create a portfolio that could beat the S&P 500. Over time, his tinkering turned into 40 different strategies whose performances are measured against various indexes. The company’s first fund, the Global X Artificial Intelligence & Technology ETF (LIVR), aims to harness the power of AI in portfolio management.
How it Works
The LIVR ETF will use large-language AI models to create a diversified portfolio that can adapt to changing market conditions. Unlike traditional machine-learning techniques used by other AI-centered ETFs, Intelligent Alpha’s approach relies on Large Language Models (LLMs) like ChatGPT. This allows the fund to incorporate more complex strategies and potentially outperform passive investing.
The Challenges Ahead
While the idea of an AI-driven ETF may seem revolutionary, there are still many challenges to be addressed. Little evidence exists that AI is disrupting and displacing investing units en masse, and much has yet to be resolved when it comes to issues like chatbots making things up in their answers.
Performance Metrics
The performance metrics for the LIVR ETF will be measured against various indexes. As of last close, only one of the 16 AI-centered ETFs tracked by Bloomberg Intelligence has outperformed the S&P 500 this year: the Franklin Intelligent Machines ETF (IQM). The fund returned 19% while the stock index gained 18%.
Inflows and Outflows
Only two AI-centered ETFs have seen meaningful inflows, taking in more than $1 billion each this year. The Global X Artificial Intelligence & Technology ETF (AIQ) has taken in over $1 billion, followed by a $117 million haul for the Roundhill Generative AI & Technology ETF (CHAT). The rest have seen tiny inflows or outright outflows.
Conclusion
The launch of the LIVR ETF marks an exciting new chapter in the world of finance. By harnessing the power of AI, Intelligent Alpha aims to create a more adaptive and efficient portfolio management system. While there are still many challenges to be addressed, the potential rewards of this innovative approach could revolutionize the way we invest.
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