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An AI view of the market


Qraft Technologies, based in South Korea, specialises in the use of AI in security selection and portfolio construction.  

In the latest rebalancing report for LQAI, the firm’s LG-QRAFT AI-Powered U.S. Large Cap Core ETF, the algorithm showed increased conviction in the IT, communications-services and consumer-discretionary sectors. It highlighted Nvidia, Apple and Advanced Micro Devices (AMD) as its top stock picks.

Reflecting on the major economic factors contributing to the AI-generated view on portfolio allocation in June, Weldon Rice, head of AI ETFs at Qraft says: “The key macroeconomic indicators important this month include the moderation in inflation, persistent wage pressures and uncertainty about Federal Reserve (Fed) policy, particularly concerning interest rates. The addition of the 272,000 nonfarm payrolls in May and a 4.1 per cent year-on-year growth in hourly wages underscore a robust job market and sustained consumer demand.

“Current high interest rates and the potential for late-2024 rate cuts by the Fed, alongside global economic influences and geopolitical risks also played crucial roles in shaping market sentiment and influencing the portfolio’s rebalancing towards sectors like consumer discretionary and health care, and resilient tech companies, while reducing exposure to rate-sensitive sectors.”

Rice, who leads on the sale and promotion of Qraft’s three AI-powered ETFs in the US, was previously manager at the office of global affairs – Korea and then assistant regional director for the Asia Pacific region at the University of Central Oklahoma. He joined Qraft in 2021, initially as sales and marketing manager. He then moved into the role of strategic partnerships manager before taking up his current position.

Commenting on reasons for AI’s increased conviction in IT, communications services and consumer-discretionary sectors, he says: “The IT sector was chosen due to its ability to navigate significant geopolitical and supply-chain challenges while capitalising on burgeoning opportunities in AI technology.

“Companies like Nvidia and AMD have demonstrated resilience and adaptability, including through Nvidia’s strategic partnerships to mitigate risks and maintain production continuity amidst US-China trade tensions. The robust growth in AI technologies has bolstered market sentiment, leading to increased earnings and investor confidence. Strategic corporate alliances, like Microsoft’s investments in AI and cloud infrastructure, further enhance the sector’s appeal.

“The consumer-discretionary sector was selected for its promising segments and strategic advantages in the current economic landscape. Positive consumer trends and bullish market activities for companies like Amazon and Tesla reflect confidence in their potential for long-term growth and innovation. Macroeconomic policies favouring domestic EV manufacturers provide an advantageous environment for companies like Tesla and General Motors.

“The communication-services sector was adjusted to reflect evolving consumer behaviour and strategic industry shifts, with a decreased exposure due to mixed market sentiments and financial implications of high-profile media-rights deals. While maintaining positions in innovative firms like Amazon, the portfolio takes a cautious stance on traditional broadcasters facing financial pressures from these deals.”

Looking ahead to what the next rebalancing might bring, Rice says: “If the current market environment continues, we could expect to see similar holdings, as we have observed this pattern over the last few months.”

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