You knew it was coming...
A new chatbot-powered exchange-traded fund (ETF) aimed at replicating the investment prowess of Wall Street titans has been launched by Minneapolis-based Intelligent Alpha. The Intelligent Livermore ETF (LIVR) is built around portfolio decisions generated by three prominent large language models (LLMs); ChatGPT, Gemini, and Claude - dubbed the fund's "investment committee."
According to the fund, the ETF will emulate the thinking of legendary investors like Warren Buffett, Stanley Druckenmiller, and David Tepper, among others - yet, the portfolio won’t necessarily reflect their real-life holdings. Instead, it will draw inspiration from the strategies and investment philosophies associated with said investors, spanning sectors like healthcare, renewables, and emerging markets, Bloomberg reports.
A Wall Street First: AI as the Investment Brain
According to the report, Clinton’s firm will feed specific instructions to the chatbots, directing them to create portfolios based on the personas of these financial icons.
The firm, with roots in engineering and emerging technologies, will instruct the large language models (LLMs) to emulate the investors’ personalities. The trio of chatbots will spit out 60 to 90 global firms that span a number of sectors, themes and geographies, including health care, renewables and Latin America, to name just a few.
The list of personas targeted by the ETF — besides Buffett, Druckenmiller and Tepper — will include Dan Loeb, Paul Singer and others, though the fund’s holdings may not necessarily reflect the real-life bets by those investors. -Bloomberg
"If you think about the hedge-fund world today, that has pods that each focus on specific areas of expertise," explained Doug Clinton, CEO and founder of Intelligent Alpha. "In a sense, we’re recreating the very basics of that structure where we have these different inspirations for investors we really respect."
Uncharted Territory
While the concept of an AI-managed ETF is bold, it’s not entirely new. Several hedge funds and ETFs have begun experimenting with AI to streamline investment processes. AI has been praised for its ability to process massive datasets quickly, eliminating the need for human analysts to perform tedious tasks. However, its ability to consistently outperform traditional strategies remains unproven.
Of the 16 AI-focused ETFs tracked by Bloomberg Intelligence in the U.S., only one, the Franklin Intelligent Machines ETF (IQM), is currently outperforming the S&P 500 in 2024, with a 19% return compared to the stock index's 18%. Meanwhile, only two AI-centered ETFs have seen significant inflows: the Global X Artificial Intelligence & Technology ETF (AIQ), which brought in over $1 billion this year, and the Roundhill Generative AI & Technology ETF (CHAT), which attracted $117 million. The rest have either seen minimal inflows or experienced outflows.
What sets Intelligent Alpha’s ETF apart is its use of LLMs rather than traditional machine learning models. According to Clinton, most AI ETFs rely on older techniques, which limits their strategies to crowded quantitative insights. By leveraging LLMs, Intelligent Alpha aims to break through these limitations and create portfolios with a different kind of edge.
From Experiment to Product
The idea for the Intelligent Livermore ETF took root last year when Clinton began experimenting with ChatGPT to generate investment portfolios. After seeing success in creating strategies that outperformed the S&P 500, he expanded his testing to 40 different investment strategies. These trials ultimately led to the founding of Intelligent Alpha, which is affiliated with Deepwater Asset Management, a Minneapolis-based firm managing approximately $400 million in venture capital and public equity funds.
Though the Intelligent Livermore ETF is Intelligent Alpha’s debut product, the company has plans to launch a suite of AI-driven offerings, including custom portfolios and hedge funds aimed at both retail and institutional investors. Clinton and his team have already filed for additional ETFs and hope to lead the charge in the AI-powered investment space.
The new ETF pays tribute to Jesse Livermore, one of the most famous stock traders of the early 20th century. LIVR has a management fee of 0.69%.
In order to prevent 'hallucination' - in which a LLM either fabricates information or misinterprets input, a human the fund does have final human oversight.
"Just to make sure there’s not some sort of a hallucination in the portfolio, like a company that committed fraud or some egregious issue," said Clinton. "And also that the portfolio will meet any regulatory or compliance constraints that we might know about that the AIs may not be thinking about when they create the portfolio."
