Intelligent Alpha

Our Intelligent Small Cap Conviction strategy is ahead of the Russell 2000 by almost 700 bps since inception. The strategy holds the 30 top picks of our generative AI investment committee (ChatGPT, Bard, Claude). A few of AI's favorite small cap picks that have worked over the past several months: - Chico's (CHS) a retailer which is getting acquired by private equity. - Griffon's (GFF) a residential and commercial door manufacturer. - Hibbett (HIBB) a sports retailer. - GEO Group (GEO) a prison operator. As we go through portfolio reviews, we'll see what the AI committee thinks will be the next group of small cap outperformers.

Wild market rallies. Wild market pullbacks. AI is winning in all markets, and we think it will keep winning. Our AI-powered model portfolios are winning too. The IA Aggressive Model is ahead of its comp portfolio by 60 bps over the torrid past month and by almost 1100 bps backtested YTD. The IA Conservative Model is ahead of its comp portfolio by 10 bps over the past month and almost 400 bps backtested YTD. AI-powered strategies taking assets from active and passive will be the story of the next few decades, just like the active to passive shift of the past over the past few. The future of investing is intelligent. Follow us here for updates.

Can ChatGPT assist in picking stocks? That's the subject of a recent paper published in a finance journal. The paper suggests that ChatGPT does a good job analyzing earnings surprises and reacting to new events in a "timely manner." Of course we already know gen AI is a good stock picker. 65% of our strategies are ahead of benchmarks, some by 200-500 bps since inception. And we aren't playing the earnings game which we believe is a losing strategy in the long run. We teach our AI the basic principles of great investors, let the AI pick stocks based on those simple ideas, then let the portfolios run with minimal disruption. The ultimate answer to the question of whether AI can beat markets is simply time in the market. Every day we see strong results from AI vs markets, our conviction grows that AI is the future of stock picking. The future of investing is intelligent. https://lnkd.in/gKfDmKmJ

Why are our AI-powered stock strategies are performing well vs benchmarks? The biggest difference is our embrace of simplicity vs complexity. We teach our AI investment committee the simple philosophies of great investors, give the AI minimal viable data to make good decisions, and encourage low portfolio turnover. That process is widely scalable to different market caps, sectors, themes, and factors. Many other AI-powered strategies focus on big data. They train models on billions of datapoints. When you use billions of datapoints, you're destined to deal with a lot of noise, and all you can do with noise is trade it with specialized models. Specialized AI approaches can be effective, but it will be harder to generate compelling long-term alpha without embracing the fundamentals of the great investors who've already proven the blueprint for investment success. Keep it simple. Stay patient. Success follows. The future of investing is intelligent.

Intelligent Alpha creates three kinds of AI-powered investment strategies: 1 Select. Broad-based strategies typically with 100-200 holdings selected and custom weighted by our AI investment committee. Select strategies can target any market cap segment, sector, factor, etc. 2 Conviction. Strategies with our AI investment committee’s 30 favorite stocks in a given cap, sector, factor, etc. 3 Thematic. Indexes targeted at specific themes, assisted with AI for discovery. Typically 30 holdings or less. What are we seeing so far? Conviction strategies are broadly beating the Select strategies where both are tracking the same benchmark (5/7 pairings). The Conviction strategies focus on the AI committee’s top choices for high quality, long-term investments where Select strategies are intentionally broader. The success of the Conviction strategies suggests AI is competent stock picker vs both market benchmarks and other AI approaches. Follow Intelligent Alpha for weekly updates on our performance vs markets and other AI-powered funds. The future of investing is intelligent.

Our AI-powered strategies performing well vs markets, and so too are our model portfolios built with those strategies. The Intelligent Alpha Aggressive Model is ahead of its comp benchmark by 70 bps over the past month and by almost 1000 bps in simple back testing YTD. Our Conservative Model is inline with its comp benchmark and ahead by 360 bps YTD in back testing. AI-powered strategies with focused, fundamental investment philosophies are the future of stock picking alpha generation, and they’ll fuel the model portfolios of the future too. 

The best uses of generative AI balance human instruction with creative freedom of the AI. Too much instruction and you just have a tool that understands natural language. Too much creative freedom and you get wild, useless output.   Especially true for using AI to pick stocks... Many AI approaches give too much instruction and too much data which just creates a pattern trading machine. That's not intelligence in an era closing in on AGI. If you don't let the machine exercise its own creativity, you won't find a strategy that will be markets over time. Follow Intelligent Alpha to track our progress in using AI to beat market benchmarks. So far, so good.

Own the best companies. Short the worst. That was Julian Robertson's simple philosophy that built Tiger into one of the most successful hedge funds of all time. Our AI-powered process starts with giving the AI a philosophy about how to invest rather than a ton of noisy data in hopes of finding trading signal. And we've built one strategy that uses Robertson's philosophy. Of the AI's 30 choices for best stocks, CHTR is the one that surprises me as a "best" company. MDB surprises me as a "worst." It seems a valuation call by the AI committee. Maybe it will work out. Maybe it will be a learning for the AI and me in terms of how to clarify owning the best vs the worst. We know AI can be a good stock picker given many of our AI-powered strategies are outperforming markets, so let's give it the benefit of the doubt.