Can Humans Understand How AI-Based ETF Invests?

We developed something fantastic………..Uh, we don’t know how it works. That’s pretty much the message that Chida Khatua (CEO of EquBot) is expressing. You see, EquBot has built an artificial intelligence (AI) system for investing and last October an ETF launched using EquBot recommendations. As Chida’s team was pouring over the ‘bots’ stock recommendations they couldn’t figure out the ‘bots’ method of selection or why it made them. BUT, they built the ‘bot’ (good thing they don’t build airplanes). So, it seems that AI based systems are not only smarter than humans (even the ones that built them) but the “bots” really don’t need us humans. At least not till after humans build them. Now, to be fair, the new AI powered equity ETF has raised $136M in AUM since October which puts it down as one of the most successful ETF launches of 2017. Congrats on that, but remember, just like humans “past performance is not a guarantee of future performance”. So, who ya gonna sue for any losses?

(Bill Taylor/Managing Editor)

“For a guy who built a robot he hopes will banish human emotion from the investing process, Chida Khatua spends a lot of time trying to figure out how it thinks.

Khatua is chief executive officer of EquBot, a San Francisco company that’s built an artificial intelligence system for investing. In October, a day before the launch of an exchange-traded fund that uses EquBot recommendations, his team was going over stocks the computer wanted to buy. One name popped out: Brookdale Senior Living Inc., which operates retirement communities and nursing homes. This was back when wildfires were burning parts of California, where some of Brookdale’s facilities sit.

The trade looked off to Khatua, a former Intel Corp. engineer. Buy a company caught up in a natural disaster? But on a second look, it wasn’t hard to put together what the computer might have been thinking. News reports and press releases—all fed into the system—showed how Brookdale was responding to the threat. “We found, hey, that senior living facility—they have a very good, organized setup” and could provide backup housing, Khatua says. The ETF bought the stock and made a small profit on the trade. Scanning news wires may not sound like a human equity analyst’s idea of deep research, but for a computer it’s all data that can be combined with other information to make statistical predictions…”