The growing appreciation that human stockpickers struggle to outperform their benchmark indices has helped fuel a massive surge in assets held by passively managed exchange traded funds. Now some companies are hoping to show that artificial intelligence can finally give them an edge. The technology is fast-evolving but at least two fund managers, EquBot and Qraft Technologies, running dedicated AI-powered ETFs are claiming early success, even though some of their AI models' decisions might have required strong nerves to implement. For example, the team at Qraft, which offers four AI-powered ETFs, listed on NYSE Arca, witnessed its technology build a weighting of 14.7 per cent in Tesla in its Qraft AI-Enhanced US Large Cap Momentum ETF (AMOM) in August last year, but when it rebalanced a month later on September 1 it sold it all. The ETF began buying Tesla again in November, amassing a stake of 7.6 per cent by January this year, but in the February rebalancing it sold the entire holding once again.

"AI will probably most likely lead to the end of the world, but in the meantime, there'll be great companies." If investors are looking for that one great AI company that will also end the world, then they should forget Alphabet or Amazon. I'd put my money on the Japanese firm Cyberdyne Inc. Why? Because it bears the same name as the company that created the Skynet AI in the Terminator films. Skynet fulfilled Altman's prophecy before he made it, albeit on the silver screen, and wiped out human civilization.

Horizons ETFs Management Canada Inc. is recalibrating its artificial intelligence (AI) exchange-traded fund (ETF) after a year of underperformance that was a "complete disappointment," according to the provider's chief executive officer. The Horizons Active A.I. Global Equity ETF (MIND), which uses a proprietary AI-directed selection process to invest in major global equity indexes through a basket of ETFs, has trailed the market over the past year, down 1.04 per cent on a return basis, versus a positive total return, in Canadian dollar terms, of 5.76 per cent for the MSCI World Index. "We have been looking at MSCI World, and we're significantly underperforming on a year-to-date basis," Horizons Canada CEO Steve Hawkins said. "When we first launched this product, we had very high hopes. People would ask how well this could outperform the market. All the back-testing we did provided us with a lot of comfort that an unbiased AI system making investment management decisions would outperform the market when you're dealing with a lot of investor bias."

AI Powered Equity ETF (ticker: AIEQ) is an actively managed fund, but the stocks are selected by IBM's Watson using algorithms developed by EquBot. The San Francisco firm's co-founders, Chida Khatua and Art Amador, joined Bloomberg's Scarlet Fu to discuss how the ETF is structured, AIEQ's performance and the limits of AI-investing.