Skip to Content
MarketWatch

A benchmark-beating robot thinks AMC will outperform Facebook and GameStop. It likes these other stocks, too.

Jack Denton

AMOM, an artificial intelligence-driven fund, also ditched shares in another meme stock in July.

An exchange-traded fund run by artificial intelligence bought AMC stock at the beginning of July, preferring shares in the cinema chain and retail investor favorite over the likes of Facebook or Walmart.

The Qraft AI-Enhanced U.S. Large Cap Momentum ETF, trading as AMOM (AMOM) on the New York Stock Exchange, removed some major technology and retail stocks from its portfolio this month as it shifted to focus on pandemic trades and reducing volatility.

Facebook (FB), Walmart (WMT), Home Depot (HD), Adobe (ADBE), and Texas Instruments (TXN) together represented around 28% of the fund's holdings in June, but all five stocks were completely removed in the latest rebalancing at the beginning of July. The artificial intelligence controlling the fund believes these stocks will see price declines across the month.

The standout among the stocks added in July was AMC (AMC), the cinema chain that along with GameStop (GME) has epitomized the "meme stock" trading frenzy in 2021.

Also read:Don't ignore these 3 changes to investing highlighted by GameStop, BlackBerry and AMC, says top economist (link)

A flock of investors, largely organized on social media platform Reddit, helped squeeze hedge funds' short positions on companies including GameStop and AMC earlier this year. The trading frenzy caused multibillion-dollar losses for hedge funds, unbelievable gains for individuals that timed it right, and ushered in a new era of internet-inspired trading.

AMC's stock price rose 570% from January 20 to January 27--from nearly $3 a share to almost $20. Shares in the group are now up close to 1,500% so far in 2021, trading around $33.

And now the AI calling the shots at AMOM thinks the stock will move even higher in July, buying enough shares to make up 1.8% of the fund. Bringing AMC into the fold came as the robot ditched fellow meme stock GameStop, which was added to AMOM in May but booted out after the stock fell more than 14% in June.

"Qraft's AI model is not specifically designed to invest in meme stocks, but rather in stocks with high capital appreciation potential," Geeseok Oh, a managing director at Qraft and the head of its Asia-Pacific business, told MarketWatch.

"AI is not swayed by prejudice or bias and may pick up meme stocks if the momentum seems highly positive," said Oh. "This month, our model found AMC more opportunistic than other meme stocks like GameStop."

Plus:Here's how much bitcoin is worth, says JPMorgan, as crypto faces this summer headwind (link)

The top five stocks by portfolio weight added to AMOM in July include retailer O'Reilly Auto Parts (ORLY), software group Cadence Design Systems (CDNS), electronics store chain Best Buy (BBY), biotech cancer specialist Seagen (SGEN), and enterprise software developer HubSpot (HUBS).

After the fund was rebalanced, AMOM's five largest holdings by portfolio weight were online dating group Match (MTCH), cybersecurity company Fortinet (FTNT), O'Reilly Auto Parts as well as rival AutoZone (AZO), and retailer Kroger (KR).

"With Covid-19 reaching new peaks, the AI made trades related to the pandemic conditions," Oh said. "Match Group is one of the beneficiaries of the pandemic with more people trying out online dating. Fortinet stock gained prominence with more and more governments emphasizing the importance of cybersecurity."

Oh also added that it was noteworthy that AMOM has decided to adjust its portfolio away from very big bets--in June, the fund's top three stocks accounted for 21% of the portfolio, but now the top three stocks account for just 11%.

"Given the volatile market sentiment, the AI seems to have adjusted portfolio and concentration to hedge against potential risks," he said.

More:Tesla bull calls this auto giant's $35 billion electric strategy a 'renaissance' and says the stock could soar (link)

AMOM has been listed in New York since May 2019, and has delivered total returns of 12% so far in 2021 and 42% in the past year--outpacing its benchmark, the S&P 500 Momentum index, which has climbed a comparable 34% since July 2020.

The fund is a product of Qraft, a Seoul, South Korea-based fintech group leveraging AI across its investment products, which include three other AI-picked versions of major indexes: a U.S. large cap index (QRFT) ; a U.S. large cap dividend index (HDIV) ; and a U.S. value index (NVQ) NVQ.

AMOM is an actively managed portfolio driven by artificial intelligence, tracking 50 large-cap U.S. stocks and reweighting its holdings each month. It is based on a momentum strategy, with the AI behind its stock picks capitalizing on the movements of existing market trends to inform the decision to add, remove, or reweight holdings. The artificial intelligence scans the market and uses its predictive power to analyze a wide set of patterns that show stock-market momentum.

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 (link), 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 (link) 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.

-Jack Denton; 415-439-6400; AskNewswires@dowjones.com

 

(END) Dow Jones Newswires

07-17-21 1945ET

Copyright (c) 2021 Dow Jones & Company, Inc.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.