Artificial intelligence marvel ChatGPT can write poetry, answer trivia questions and take tests. But it falls flat with S&P 500 stock picks — meaning you'll need to look elsewhere to bring AI to your portfolio. There are ways to do it though.
Financial advice is one area ChatGPT won't touch. Making things worse for investors hoping to tap it for stock picks, the AI's knowledge is limited after 2021, when its creators quit feeding it historical data.
"I'm sorry, but as a language model AI I do not have the ability to provide personalized financial advice or predict the future performance of specific stocks," ChatGPT responded when asked "Which stocks should I buy?"
So how do you bring AI to your portfolio? There are other ways.
AI-Powered ETFs
Several ETFs already unabashedly use AI to pick the stocks they hold. And many of them are having a good year — handily beating the S&P 500.
There are at least 10 ETFs that use AI to choose the positions they hold. One of the largest such ETFs, the nearly $1.9 billion in assets SPDR S&P Kensho New Economies Composite ETF, is up more than 13% this year. The ETF uses AI to spot companies pushing technology that's transforming the economy.
Likewise, the $121 million-in-assets AI Powered Equity ETF uses IBM's Watson AI to pick its portfolio using fast-changing algorithms. It's also topping the S&P 500 with a 12.8% rise. It's betting big on JPMorgan Chase and disease treatment firm Novavax.
AI Powered Equity "currently favors everything from health care/biotech to energy and names exposed to the health of the U.S. consumer," said Jessica Rabe of DataTrek Research. "AIEQ has been diversifying its holdings in a host of industries and putting most of its capital to work, which has been a successful strategy to start 2023. The machine thinks U.S. stocks have turned the corner."
BTD Capital Fund is another interesting angle letting the AI do the trading for you, says VettaFi's Todd Rosenbluth. The ETF uses a computer to find stocks to buy on a dip for a fast profit.
Humans Pick AI S&P 500 Winners
Another approach to cashing in on AI is thematic ETFs. These funds use human portfolio managers to pick companies positioned to cash in on AI. They, too, are mostly outperforming this year.
There are at least seven such ETFs. One of the largest is the $1.5 billion in assets Global X Robotics & Artificial Intelligence ETF. The ETF is up nearly 19% this year. Big positions include Nvidia, a maker of the computer chips that power many AI machines. Shares of Nvidia are up an astounding 53% this year, partly due to the excitement over ChatGPT.
It's important to note, though, the Global X Robotics & Artificial Intelligence ETF owns 44 stocks. That dilutes the power of any individual winner. And it's not just investing in the U.S. Only 43% of its portfolio holds U.S.-based stocks. Japan is No. 2 at 36% and Switzerland third at 13%.
Trying To Choose AI Winners
You may not trust AI to pick your stocks. And you might want more upside from winners. If so, you might try your hand at choosing the individual companies to score most on the rise of AI.
Nvidia is a logical choice. But many are also betting on C3.ai, the Redwood City, Calif.-based pure-play in AI. Shares of the AI company are already up 128% this year. It's working with giants like Amazon.com, Alphabet and Microsoft on AI.
But this approach is highly speculative, too. Analysts think C3.ai will lose money until at least 2026, when it's seen making a small profit.
"Investors are starting to realize that there is too much info to process in the market and that they could possibly benefit from artificial intelligence," Rosenbluth said. "But computers can only follow the rules that humans require of them. So it is important to understand there are limitations."
Let AI Pick Your Stocks?
Top ETFs where AI picks the portfolio
| ETF | Symbol | Assets ($ millions) | YTD % ch. | Fee |
|---|---|---|---|---|
| AI Powered Equity | 121 | 13.1% | 0.75 | |
| SPDR S&P Kensho New Economies Composite | $1,780 | 12.8 | 0.20% | |
| UBC Algorithmic Fundamentals | 2.4 | 10.5 | 0.75 | |
| QRAFT AI-Enhanced U.S. Large Cap | 4.9 | 7.8 | 0.75 | |
| BTD Capital Fund | 1.8 | 5.5 | 1.29 | |
| QRAFT AI-Enhanced U.S. Large Cap Momentum | 11.9 | 5.1 | 0.75 | |
| WisdomTree U.S. AI Enhanced Value Fund | 424 | 4.4 | 0.38 | |
| Optimize AI Smart Sentiment Event-Driven | 0.5 | 3.9 | 1 | |
| Merlyn.AI Bull-Rider Bear-Fighter | 21.9 | 1.0 | 1.29 | |
| AdvisorShares Let Bob AI Powered Momentum | 26.1 | 0.0 | 0.49 |
Sources: IBD, S&P Global Market Intelligence, ETF.com
Follow Matt Krantz on Twitter @mattkrantz
