An asset manager whose holdings are picked by artificial intelligence traded some big names this month, selling
Amazon
and Big Oil stocks as it scooped up
PayPal
and Moderna.
But buying Avis stock had the most eye-popping result, with shares in the car-rental company tripling in a move that even the robot trader wouldn’t have predicted.
AI-driven investor Qraft saw its robot trader benefit from a ‘meme stock’-style explosion with Avis, though it made ill-timed bets on PayPal and Moderna before quarterly earnings that spooked investors.
Qraft, a South Korean fintech, has around $63 million in assets across four different ETFs.
Its
Large Cap Momentum ETF
(ticker: AMOM) scooped up enough shares in
Avis Budget
(CAR) to make it the fund’s sixth largest holding in October, with more than 2.5% portfolio weight. When AMOM rebalanced its holdings on Nov. 2, it cashed out of Avis after notching profits of more than 195%. The stock soared from $121 to $357 in the month the Qraft fund held it.
In a lucky stroke, the shares rocketed higher on Nov. 2—the last day AMOM held Avis stock—after the company posted blowout earnings that may have even caused a short squeeze pinching the positions of bearish bets.
The other high-profile stock AMOM ditched in November was
Amazon
(AMZN) —previously the largest holding in the fund at 7.4% portfolio weight in October. Amazon stock had a disappointing month, returning less than 1% as the wider
S&P 500
index gained 6.9%.
As for what AMOM bought: some of its biggest buys in November were
PayPal
(PYPL) and
Moderna
(MRNA), with PayPal becoming the fund’s largest holding at 7.7% portfolio weight and Moderna in the number-three spot with 4.7%.
Both bets seem to be ill-timed, at least for now.
Francis Geeseok Oh, a managing director at Qraft and the head of its Asian-Pacific business, noted that PayPal was set to benefit from the accelerating adoption of digital payments and the addition of ‘Buy Now, Pay Later’ to its business model. Oh was also bullish on Moderna, which he said could benefit from strong Covid-19 vaccine demand, especially from booster shots and unmet demand in developing countries.
But PayPal tumbled near 12% Tuesday alone, following a warning on revenue outlook for the current quarter that sent a chill through investors’ nerves. And Moderna has lost one-third of its market value since Nov. 2, tumbling after it reported that sales of its Covid-19 vaccine fell well short of Wall Street’s expectations.
AMOM has been listed in New York since May 2019 and holds 50 large-cap U.S. stocks, picked and rebalanced each month using artificial intelligence focusing on a momentum investing strategy. The robot trader capitalizes on the movements of existing market trends to inform the decision to add, remove, or reweight holdings. Artificial intelligence scans the market and uses its predictive power to analyze a wide set of patterns that show stock market momentum.
AMOM has outperformed its benchmark over the past year—returning 27.3% in price to the S&P Momentum Index’s 24.5%.
AMOM’s five-largest holdings are PayPal,
Intel
(INTC), Moderna,
IBM
(IBM), and
ConocoPhillips
(COP), which were also the five most significant additions to the fund in November. It ditched
Home Depot
(HD),
Lowe’s
(LOW),
Target
(TGT), and
Colgate-Palmolive
(CL) along with Amazon and Avis in the rebalancing.
The momentum-focused robot trader wasn’t the only of Qraft’s funds to have a good October. Its
Next Value ETF
(NVQ) made major profit-taking trades as it exited two Big Oil stocks that marched higher last month.
Qraft’s NVQ took major stakes in
Exxon Mobil
(XOM) and
Chevron
(CVX) in October to make up 17% of the fund’s holdings—and it sold off all the shares on Nov. 2. Exxon Mobil rose more than 6% across the month while Chevron gained more than 9%.
“Energy industry may no longer represent value opportunities as share prices near all-time highs for many firms,” Oh said. “However, some firms may still provide value,” he added, pointing to
EOG Resources
(EOG) and ConocoPhillips.
NVQ, which has been listed in New York since December 2020, operates similarly to AMOM, with the robot trader picking 100 large-cap U.S. stocks based on a value investing strategy. Artificial intelligence measures companies’ intangible assets, which are often complex and difficult to weigh using traditional investment approaches, to pick stocks that are apparently undervalued.
As of November, the five largest holdings in NVQ are Intel,
Raytheon Technologies
(RTX),
Berkshire Hathaway
(BRK.A and BRK.B), ConocoPhillips, and Colgate-Palmolive. Its five largest additions this month, in addition to Berkshire Hathaway and Colgate-Palmolive, were
Capital One
(COF),
Valero Energy
(VLO), and
Bunge Limited
(BG).
The fund’s market price has climbed 23.4% so far this year, outperforming its comparable index, the S&P Value Index (SVX), which has risen 20.5%.
Qraft’s two other AI-picked ETFs are a
U.S. large cap index
(QRFT) and a
U.S. large cap dividend index
(HDIV).
The entrance of AI-run funds onto Wall Street promised a new high-tech future for investing, though it hasn’t quite lived up to the hype yet. Theoretically, researchers have shown that AI investing strategies can beat the market by up to 40% on an annualized basis, when tested against historical data.
But Vasant Dhar, a professor at New York University’s Stern School of Business and the founder of machine-learning-based hedge fund SCT Capital Management, argued on MarketWatch in June 2020 that AI-run funds won’t “crack” the code of the stock market.
Advocating caution, Dhar said that it was difficult for funds underpinned by machine learning to maintain a sustainable edge over markets, which have “a nonstationary and adversarial nature.” He advised investors considering an AI system to ask tough questions, including how likely it is that the AI’s “edge” will persist into the future, and what the inherent uncertainties and range of performance outcomes for the fund are.
Write to Jack Denton at jack.denton@dowjones.com
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