Disrupting market rules: AI traders abandon Nvidia and support tech giants

Apple (AAPL.O) and Alphabet (GOOGL.O) are top choices for funds that surpassed the S&P 500 this year. While this may not sound surprising, the process of selecting them was unusual — it was done using artificial intelligence augmented models.

Qraft Technologies , powered by AI and backed by SoftBank, is a South Korean fintech company that manages approximately $50 million in assets involving three ETFs listed on the New York Stock Exchange. The company is interested in Big tech companies remain optimistic.

In Qraft's US Large-Cap Momentum ETF (AMOM), 50% of the holdings are concentrated in the technology company Nvidia (NVDA.O) It is still the largest holding, and is tied with Apple. Meanwhile, its other large-cap fund (QRAFT) has no investment in the chipmaker.

AMOM increased Apple's holding ratio from 6.6% to 9% in October, the same as its Nvidia holdings. Its large holdings also include Lilly (LLY.N), Tesla (TSLA.O), Broadcom (AVGO.O), Microsoft (MSFT.O) and Amazon (AMZN.O) hold positions between 4% and 6%.

In October, the fund increased its Amazon holdings by 4.3% and its holdings at COST.O (COST.O) increased by 2.2%. At the same time, it completely sold off its GE Aerospace (GE.N) and Amphenol (APH. N), Spotify (SPOT.N), and Chipotle Mexican Grill (CMG. N)'s entire position.

Since listing on the New York Stock Exchange in 2019, AMOM has held 50 major US stocks. They use AI to select and rebalance each month, focusing on momentum investment strategies.

Momentum factor investing targets stocks that have performed well recently, assuming that these stocks will continue to rise.

The fund's return so far this year is 33%, compared to the S&P 500's 24%, according to FactSet. However, it lags behind the Standard & Poor's Momentum Index, which has risen 44% so far this year.

The MSCI US Momentum Index, which tracks the broader US stock market and has strong price momentum, has risen 34% so far this year. But AMOM's AI model may have misjudged Tesla and last week's Robotaxi incident. The fund is heavily betting on Tesla's continued momentum and increased its holdings in electric vehicle manufacturers prior to the incident. At least in the short term, this strategy didn't work because Tesla's share price dropped 8.8% in post-incident trading. Perhaps AI can see changes in market dynamics that human analysts have overlooked.

Francis Geeseok Oh , Qraft's chief operating officer and Asia Pacific CEO, told Barron's that AI-based transactions have some obvious advantages, including the ability to objectively process large amounts of data without emotion.

“It's hard for people to get rid of emotions, or sometimes dependency on previous decisions,” he said. “A lot of people have a strong ability to keep making excuses. On the investment side, this often doesn't necessarily lead to long-term sustainable returns. It's possible for AI to do this. ”

Qraft also has another US large-cap ETF (QRFT). The fund sold off Tesla's holdings in October, and in a slightly ironic move, artificial intelligence completely abandoned AI chip giant Nvidia, which was completely removed from the portfolio in August.

Nvidia has been the cornerstone of the QRFT portfolio since September 2019, when it was trading for just $3.75. But by strategically avoiding the most crowded chipmaker deals, the QRFT Fund has successfully coped with market fluctuations surrounding the company over the past two months.

Using a multi-factor model, QRFT holds 350 more diverse stocks and is more resistant to risk. Unlike AMOM, QRFT's portfolio is biased more towards consumer goods and healthcare than momentum stocks. In October, QRFT turned its focus to Apple, Alphabet, Walmart, and Eli Lilly, continuing to maintain zero exposure to Nvidia.

The fintech company also launched a core ETF for large US stocks under the trading code LQAI, which also uses an AI model to invest.

As Francis Geeseok Oh points out, AMOM shows an interesting monetization model that is very different from how humans make decisions. It usually enters the market when other analysts might think the stock is overvalued or underperforming, and tends to profit earlier than most.

While it's uncertain whether AI can break the market, it's fair to say that no matter your attitude towards this cutting-edge technology, AI-enhanced ETFs may help diversify your investment portfolio.