Asset managers expand AI-run stock ETF bets as early returns outpace benchmarks

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AI-run stock ETFs expand

Highlights

Fully AI-managed ETFs, totaling about $30 million in assets, have outperformed benchmarks since launch but remain a marginal segment of the ETF market.
AI-driven funds like FinQ's two products launched in February are up 25.35% and 23.98%, well above the S&P 500's 11.0% rise in the same period.
Despite early outperformance, broader adoption is cautious due to short track records, higher fees, and concerns about AI's performance in downturns, with most asset managers favoring AI-enhanced rather than fully AI-run strategies.

Early launches test fully automated stock selection

As reported by Reuters, fewer than half a dozen ETFs, managing about $30 million in total, rely entirely on AI-powered models to run tasks from research to portfolio construction. That is still a marginal share of the ETF market, yet it marks a more aggressive use of automation than the broader industry trend of using AI as a supporting tool.

Managers behind these funds argue that AI can process larger volumes of market data faster than humans while removing emotion and behavioral bias from investment decisions. Tal Schwartz, founder and CEO of Ai Funds, says that approach creates a third route for investors beyond passive index investing and traditional active management led by human stock pickers.

Schwartz launched the High Conviction U.S. Equity AI-Managed ETF in August using a proprietary learning algorithm trained on decades of market data. The fund has gathered less than $20 million in assets, according to ETF.com data, and is up 2.7% since its August 21 launch, ahead of the S&P 500's 1.1% gain over the same period.

Other fully AI-driven products are also posting gains above the benchmark. Two funds launched by Israeli asset manager FinQ in February are up 25.35% and 23.98% since inception, compared with an 11.0% rise in the S&P 500, while two Pacer funds launched in early May have advanced 10.34% and 10.33%, versus a 5.8% gain for the index.

Investor caution shapes broader industry adoption

Despite the early outperformance, advisers and analysts say the products face hurdles including short track records and relatively high fees. Jeff Judge of Chesapeake Financial Planners says advisers are more comfortable using AI to inform decisions than allowing it to make decisions outright, while Strategas ETF analyst Todd Sohn says the real test will come in how these strategies manage risk during a market downturn.

The more common path across the industry is an "AI-enhanced" model in which technology supports stock analysis, quantitative screening or risk monitoring rather than taking full control. A Mercer survey earlier this year found 91% of asset managers planned to increase their use of AI-based portfolio management tools this year as firms work out which tasks can be safely delegated.

Pictet Asset Management is among firms following that more measured approach. Its Pictet AI Enhanced U.S. Equity ETF, launched in February, has attracted $163 million in assets and returned 14.8% since debut, compared with 11.4% for the S&P 500.

Executives say human oversight remains central even as AI becomes more embedded in investment processes. David Wright, head of quantitative investments at Pictet Asset Management, compares AI to an aircraft autopilot system, while Man Group's Dan Taylor says he still worries about how AI handles rare and extreme market events where risks and opportunities are often greatest.

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