Israel’s FINQ launches US ETFs managed solely by AI

By Steven Scheer and Suzanne McGee

TEL AVIV/PROVIDENCE, Rhode Island, Feb 10 (Reuters) – Israel fund manager FINQ said on Tuesday it was entering the U.S. Exchange-Traded Funds market with two funds that ‍will be solely managed by artificial intelligence, a nascent sub-sector where so far AI has only been used as a supporting tool.

Portfolio decisions will be fully selected and managed by FINQ’s AI model, with human involvement focused only on oversight and governance, it said. It added that its AIUP and AINT U.S. ‌large-cap equity ETFs were the first such funds to ‌be approved by the Securities and Exchange Commission.

In the investment industry, AI is largely used as a supporting tool that assists portfolio managers who make the final decisions.

It is different to algorithmic trading, where people deign models that respond ​to certain signals and the execution is automated. In this new and still-emerging category of fund, an AI model does the actual selection, ‍design and management of the portfolio.

“FINQ is ​built on a data-only system that makes investment decisions much ​better than humans, as it has the ability to process immense amounts of data, ‍without the disadvantages aligned with human fear, greed, urgency to act and other disabling human attributes,” said Eldad Tamir, founder and CEO of FINQ.

“The future of investing lies in systematic, data-driven decision-making.”

In 2023, Simplify Asset Management said it was rolling out three new ETFs approved by the ‍SEC that primarily rely on AI rather than human beings to select portfolio holdings.

However, Bryan Armour, an ETF analyst at Morningstar, cautions that the road to ‍applying AI to stock ‍selection has been bumpy so far, with several funds ​that tried to deploy it closing.

“Some had turnover ​of 2,000%. ⁠Of course, AI may not have been as ‘intelligent’ ‌then as it seems to be becoming,” Armour said.

FINQ said the ETFs are managed by a proprietary AI framework that continuously ranks all 500 stocks in the S&P 500 index and serves as a foundation for portfolio selection, weighting and rebalancing.

(Reporting by Steven Scheer in Tel Aviv and Suzanne McGee in Providence; Editing ⁠by Emelia Sithole-Matarise)