Making Plans and Achieving Goals

Why I’m Not Buying The Mutual Fund of The Future

Why I’m Not Buying The Mutual Fund of The Future

Has anyone else heard of the new AI (Artificial Intelligence) Equity Fund ETF AIEQ?  It is a fairly standard actively managed fund trying to beat the market.  What makes this fund so unique is that it is managed not by a person but by a computer.  More specifically Equbot which is powered by the famous IBM computer Watson.  Equbot does what any fund manager would do in that it tries to pick the best 30-70 companies to buy to produce the best returns while balancing risk.  However, Equbot is able to analyze over one million pieces information daily that might predict market changes.  It will analyze everything from market swings to recent news articles.  It also uses Artificial Intelligence to learn as it goes.  So in theory Equbot should just get better and better with time.


Tough to judge performance as the inception date of the fund was 10/18/2017.  During that time it has lost about 2% and the S&P500 is up about 1%.  But again two weeks is a silly time frame to look at.  AIEQ and Equbot are brand new to the game so they are still learning.  And apparently, they learn about a thousand times faster than we do.

Beating The Market

The idea with this actively managed fund just like all actively managed funds is to beat the market.  Rarely has a fund been able to outperform the market over a long period of time.  Which is why Warren Buffet always is always willing to make that million dollar bet.

I think AIEQ actually has a chance to beat the market.  It has a lot of advantages to the average hedge fund manager.  Primarily the fact that it is driven purely by data and not human biases.  As human’s we can’t help but to pick some winners and losers based on “our gut” instead of data.  We all like to think we are above that type of irrational thought but it simply is part of who we are.

I Still Hate Fees

The greatest supercomputer on earth is analyzing millions of data points and comparing them against millions of changing variables all to get me super sweet returns. So why am I not buying this fund?  It is all about those fees.  There is an expense ratio of 0.75%.  Which is cheaper than most actively managed funds which are usually in the 0.85%-1.1% range.  But it is a far cry from Vanguard’s S&P 500 Index Fund VTI which has an expense ratio of 0.04%.

Now the difference of 0.71% might sound insignificant but it is actually huge over a lifetime.  Just to break even Equbot would have to be able to beat the market by 0.71%.  Not impossible but that is a tough hole to start in.

Taken From showing .75% vs .04%

AI Isn’t There Yet

People (myself included) love talking about and thinking about artificial intelligence.  And it is really cool to see what some of these robots are capable of.  However, right now the most intelligent robots in the world have a similar intelligence to that of a cockroach.  Technology is improving at a rapid rate and who knows where we will be in 10 years.  Currently, though we can’t expect a computer to be able to predict the future which is what is needed to beat the market year over year.  Or fantastic luck 🙂

Wrap Up AIEQ and Equbot

I think that this is a really cool idea having our most powerful supercomputer managing a fund.  A little increased competition should help drive down the cost of other actively managed funds too.  In the end, I’m not buying AIEQ because I don’t like the relatively high fees and I don’t trust Equbot to be able to predict the future.  For now, I will keep suggesting people just buy low-cost index funds as their primary investment.

Things are changing on Wall Street.  Robo Advisors like Betterment (big fan) are increasing in popularity every day.  Now mutual funds are being controlled by robots.  Are funds like AIEQ the next big thing?  Would you buy this fund?



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