South Korean artificial intelligence (AI) firm Qraft Technologies has unveiled its latest ETF in the US with the launch of the Qraft AI-Enhanced US Next Value ETF (NVQ US) on NYSE Arca.
The fund utilizes a value factor strategy that is enhanced by the use of proprietary AI technology.
Similar to the firm’s existing trio of ETFs, NVQ has been brought to market in partnership with white-label ETF platform Exchange Traded Concepts.
The actively managed ETF invests in US equities and utilizes a value factor strategy that is enhanced by the use of proprietary AI technology.
The eligible universe of stocks consists of those with market capitalizations greater than $1 billion, approximately covering the large and mid-cap segments of the US equity market.
Qraft’s approach differentiates itself from traditional value factor strategies by adjusting a company’s book value to take into account intangible assets such as research and development, marketing and advertising, and intellectual property.
According to Qraft, intangibles are becoming increasingly important for valuation measures as the economy shifts from “brick and mortar” assets to more digital and knowledge-based capital. Yet, most value strategies do not incorporate intangibles due to measurement issues using current accounting standards as well as difficulties comparing firms across different sectors.
Qraft believes that AI technology is well-suited to address these problems. The firm’s AI engine, dubbed ‘AQUA’, filters the eligible universe using a proprietary methodology to identify companies with intrinsic values, including AQUA’s estimate of the value of intangible assets, which are higher than their book values.
AQUA then uses deep-learning technologies to estimate the expected return of each stock over the following month.
The fund will typically invest in the 100 stocks with the highest expected returns, although the selection of individual holdings is at the manager’s discretion. A stock may not be selected if the distribution of its expected return is too wide (i.e. it is considered too risky) or if an upcoming corporate event such as a merger or spin-off makes the company unsuitable for the portfolio.
Stocks are weighted using a proprietary methodology designed to maximize risk-adjusted return, subject to an individual security cap of 10% and the sum of all securities with weights greater than 5% capped at 40%.
The ETF comes with an expense ratio of 0.75%.
Qraft’s existing three ETFs include the Qraft AI-Enhanced US Large Cap ETF (QRFT US), the Qraft AI-Enhanced US Large Cap Momentum ETF (AMOM US), and the Qraft AI-Enhanced US High Dividend ETF (HDIV US). Each also comes with an expense ratio of 0.75%.