Cyborg Stocks: Top ARKK/AIEQ Position Overlaps
By datatrekresearch in Blog
Regular readers know that on occasion we peek under the hood of AIEQ, a.k.a. The AI Powered ETF. It uses IBM Watson technology to “fully utilize artificial intelligence as a method for stock selection”. Its stated benchmarks are “broad US equity indices”, so we’ll use the S&P 500 and Russell 2000 for comparison purposes here. As a reminder, Nick owns 500 shares of this product as a small personal investment but otherwise DataTrek has no affiliation of any kind with the fund or its sponsors. Basically, we just think it’s cool…
Well, cool and profitable, as the following performance data shows:
- 2021 year-to-date return: +12.3 percent
S&P 500 YTD: +2.6 pct
Russell 2000: +9.5 pct - 2020 return: +25.4 percent
S&P 500: +18.0 pct
Russell 2000: +18.4 pct - Return from the March 23rd, 2020 lows to today: +101.9 percent
S&P 500: +72.3 percent
Russell 2000: +115.8 percent (higher than AIEQ, but closer than one might think given the fund’s large cap bias)
The bottom line is that if AIEQ were a human-powered fund you’d want to meet the manager and discuss their approach to stock picking. You can’t, of course, so the next best thing is to look at what the fund owns as a proxy for what the machine “likes” just now.
Here are its top 15 equity holdings as of January 22nd:
- Tesla (TSLA): 4.3 percent
- SunPower (SPWR): 3.7 pct
- Advanced Micro (AMD): 3.3 pct
- Enphase Energy (ENPH): 3.2 pct
- Google (GOOGL): 2.8 pct
- Roku (ROKU): 2.8 pct
- Applied Materials (AMAT): 2.7 pct
- Moderna (MRNA): 2.4 pct
- Etsy (ETSY): 2.4 pct
- Square (SQ): 2.3 pct
- Mosaic (MOS): 2.2 pct
- Apple (AAPL): 2.1 pct
- CrowdStrike (CRWD): 2.1 pct
- DocuSign (DOCU): 2.1 pct
- Redfin (RDFN): 2.1 pct
- Total concentration in top 15 names: 40.5 percent
Three thoughts on this list:
#1: The Tesla position is a longstanding one for AIEQ, and when we looked at this portfolio back in October TSLA was 4.6 percent of the fund. The stock has doubled since then, and AIEQ has a 4.3 pct position. This tells us that the AI algo likes the name but is managing position size to control risk.
#2: Overall, AIEQ’s top holdings are more tech-heavy than they were in October 2020. Back then, Pfizer, Coty, Ford and Cigna were all in the top 10. They have been replaced with SunPower and Enphase (solar power hardware), Applied Materials (semiconductor capital equipment), and Etsy. We’re unsure if this is the algo essentially turning its figurative back on the “reopening trade” or just finding more value in Tech than Cyclicals, but it’s worth mentioning.
#3: We were curious how many of AIEQ’s top positions also appear in the top 10 list of the Ark Innovation ETF, which of course is the buzziest human-powered active ETF at the moment. The answer is three: Tesla (9.0 percent of ARKK), Roku (7.3 pct) and Square (4.6 pct). ARKK also has a 4.9 percent position in Teladoc, which was a top 10 position for AIEQ back in October (2.2 pct) and is still 1.5 pct of the fund. As for other notable crossovers, Invitae (NVTA) is 4.0 pct of ARKK and 0.3 pct of AIEQ. If you’re looking for single stock ideas, these names are a reasonable “cyborg” (part computer, part human) generated list with which to start your own research.
Summing up: AIEQ seems to have been picking up a good bit of market “signal” in the last 12 months, so the fact that it is lightening up on cyclicals at the top of the sheet and maintaining/increasing its exposure to disruptive tech names (TSLA, SPWR, ENPH) is interesting. As we regularly note in these reviews, AIEQ’s portfolio always reminds us of the long side of a successful 1990s hedge fund manager’s book. You see a lot of well-known stocks that play well-understood themes. Perhaps the real power of artificial intelligence-powered investing is simply not overthinking things too much.
