The investment chief behind the AI-driven fund that uses IBM's Watson supercomputer explains how bots like ChatGPT will change markets
- The AI Powered Equity ETF uses insights from IBM's Watson supercomputer, and has beaten the broader market in 2023.
- Chris Natividad, chief investment officer of Equbot, said the ETF has grown in popularity with the rise of ChatGPT.
ChatGPT's meteoric rise has thrust artificial intelligence into the spotlight, and the technology will play an increasing role in investing, according to Chris Natividad, chief investment officer of fintech firm Equbot.
He helps run the AI Powered Equity ETF (AIEQ), which launched in 2017 in partnership with ETF Managers Group. It leverages data from IBM's Watson supercomputer to balance its portfolio, which has been quietly beating the market so far in 2023. Its factsheet shows most holdings are in the IT, healthcare, industrials, consumer discretionary, and financials sectors.
"We use AI with everything from maps to shopping and health screens, so to think it's not going to become a larger part of the investment space is a little bit misguided," Natividad told Insider. "It's happening."
Meanwhile, the AI Powered Equity ETF, which holds 210 assets in its portfolio, has gained popularity, with average volume soaring to 90,000 over the last five days from 10,000 previously.
Current investors have also expanded their positions and new investors have bought into the fund over the last month, Natividad said, adding that the algorithms behind the ETF are still learning.
"The increase in assets, and increase in different trades, make an impact," he said. "These tools are improving, and the operators that are using the algorithms are improving. They'll become more accurate. The theoretical accuracy of a model is meant to improve, get better at picking assets."
Wall Street is set to increasingly rely on AI
A recent JPMorgan survey of found that 53% of institutional traders believe that AI or machine learning will be the technology that has the greatest influence on trading over the next three years.
But while many asset managers are limited to decisions based on traditional market data, IBM's Watson can parse through unstructured data and sentiment-based information, such as tweets or online text.
In running thousands of different models and algorithms, the supercomputer can make investment recommendations informed by patterns that human stock-pickers can't always recognize. Natividad expects that trend to expand over time.
"AI will allow analysts to become more efficient in their respective areas," he said. "We're going to see different operators find more utility, different folks who have different investment ideas will be able to test and trade on these ideas using AI. Those innovations will evolve."
Still, Natividad noted that companies must ensure bots don't obfuscate trading methods. Transparency remains a priority at Equbot, he explained, and that will be key for the practice to gain traction across the financial industry. His firm is still working to make clients more comfortable with the fund, and keep their practices in line with regulations.
"Data transparency is important, we want to be able to share with investors what data is driving each individual trade, so AI isn't a 'black box,'" he said. "Ensuring you have the appropriate technology assets in place so you can share that visibility is tremendously important."
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