AI-Powered ETFs Aren’t Living Up to Investor Expectations

Core Insights - The initial promise of AI-powered ETFs was that algorithms could outperform human stock pickers in efficiency and cost, but they have largely failed to meet investor expectations [1][2] Performance of AI-Powered ETFs - AI-driven strategies utilize algorithms to analyze data and select investments, but many have underperformed or shut down due to issues similar to those faced by human managers, such as overtrading [2][3] - Out of 12 AI-powered ETFs tracked by Morningstar since 2020, seven have closed due to low assets under management, highlighting the challenges in this sector [3] - Remaining AI ETFs tend to have high expense ratios, with the Qraft AI-Enhanced US Large Cap Momentum ETF (AMOM) having an expense ratio of 0.75%, contradicting the expectation that AI would provide a cheaper alternative to active management [3] Notable Exceptions - The VanEck Social Sentiment ETF (BUZZ) has seen a 45% increase this year, utilizing AI to analyze sentiment from various online sources to select stocks [4] - BUZZ was developed during the meme stock phenomenon of 2021, aiming to capitalize on investor sentiment [4][5] - Other AI-driven ETFs, such as the BTD Capital Fund (DIP) and the Optimize AI Smart Sentiment Event-Driven ETF (OAIE), have closed due to underperformance [5]