South Korea's LG Tries Its Hand at ETFs

LG Electronics, the South Korean appliance maker, is moving from consumers’ kitchens and into their finances with a venture into exchange-traded funds. 

The research unit of the company known for dryers and audio gear teamed up with ETF issuer Qraft Technologies and launched a fund that uses artificial intelligence in an effort to pick a winning portfolio of large cap stocks. The LG Qraft AI-Powered U.S. Large-Cap Core ETF (LQAI), which launched Nov. 7, seeks to beat the returns of the S&P 500 index, Francis Oh, APAC CEO of Qraft, said in an interview. The active ETF invests in 100 stocks and is powered by an A.I. model the firms developed jointly. The proprietary algorithm rebalances portfolio every four weeks. 

Artificial intelligence—which leapt into the public consciousness last year with the release of Chat GPT after years of inroads into science, medicine, entertainment and more—has yet to prove itself capable of boosting portfolio performance, despite its integration into investing. BTD Capital Fund (DIP), another fund that uses A.I. to select and weight stocks, is down nearly 5% year to date and the technology appears to have not proven it can outsmart human intuition and analysis. 

“AI-powered ETFs sound great in theory—use the best AI technology to pick and choose which stocks to buy—but in practice, it’s not that easy,” explained etf.com analyst Sumit Roy. “The markets are highly competitive and there are many participants already using the latest and greatest technology to try and generate alpha.” 

LG Research and Qraft argue their model is distinctive because it can evaluate swaths of financial data and market trends at a pace that would be “challenging for humans to identify at that speed and scale” according to their press release. 

“We believe we’re setting the stage for a revolutionary transformation in how investors approach large-cap core investments and harness the potential of AI to drive positive returns for investors,” said Marcus Kim, founder and CEO of Qraft in the statement.

A.I.-Powered Stock Picking 

A.I. models that help fund issuers manage portfolios typically take in financial data and economic variables to predict performance. The Qraft and LGAI Research algorithm behind this ETF incorporates financial variables, macroeconomic data, and indicators of investor sentiment, such as news articles about a company, into the A.I. model. 

While human input was key in training the model, according to Oh, the platform will work completely on its own to rebalance the ETF’s portfolio now that it is launched. 

Contact Lucy Brewster at [email protected].