AI Investing Is Here. Momentum Strategy Shows Its Power.

Momentum factor investing has long stood out as an appealing approach to both institutional and retail investors. It is based on a simple concept—stocks that have recently outperformed tend to sustain strong performance into the near future, and thus represent attractive investment options.

At Qraft AI ETFs, we apply the lens of artificial intelligence to momentum investing through the Qraft AI-Enhanced U.S. Large Cap Momentum ETF (AMOM). Despite heightened market volatility, the fund’s strategy has remained resilient, generating a 54% return from its inception in May 2019 until May of this year. Our most important differentiator is taking a nonlinear approach powered by an AI engine.¹

Investing involves risks, including the potential for principal loss and there can be no guarantee that the strategies and processes promoted will be successful.

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For the most recent month-end and standardized performance and current holdings go to

Conventional momentum strategies are typically rules-based and utilize a time period of either six months or 12 months to determine momentum. While we believe in the value of momentum to provide long-term capital appreciation, employing such a fixed approach can limit its effectiveness.

Accordingly, the AI model powering AMOM is more flexible and can choose different momentum time frames, as well as leverage deep learning to identify stocks in our human-defined investment universe that demonstrate the greatest potential for alpha² generation.

Seeking an Advantage in Active Management 

“Attention layer” is the core AI engine building block leveraged by ChatGPT to analyze relationships between variables. Qraft AI ETFs has been utilizing attention layer as well since launching in 2019, in order to find relationships between stock performance and other variables such as fundamentals, prices and macro variables.

Our proprietary AI models for stock analysis are designed and trained to predict the relative strength³ for each security in the investable universe over the next month. Separately, our AI models for portfolio construction take into account prevailing market conditions as well as human-defined, product-specific parameters designed to manage risk in the portfolio, such as limits on individual position size and maximum sector weights. An AI algorithm then constructs a portfolio of stocks that have the greatest potential to deliver outperformance given these considerations.

Qraft AI-Enhanced ETFs are actively managed, and portfolio holdings are updated monthly to reflect the latest stock and market-level predictions generated by our AI. Through these monthly portfolio updates, we seek to strike a balance between the strategy’s long-term performance and profitability, and transaction costs and turnover. Data availability is also a consideration, as many financial data points are only updated monthly.

We believe actively managing and regularly updating portfolio holdings provides an advantage over passive strategies that rebalance less frequently. The dynamic nature of Qraft’s active management allows for greater flexibility to adapt to changing market conditions.

While active management can be a feature of both a traditional fundamental (human-led) investment approach and an AI-driven approach, AI algorithms are uniquely positioned to analyze and draw conclusions from financial data from a 360-degree perspective and on multiple planes. This ability allows the AI-driven investment process to adapt to changing market dynamics at a speed unmatched by humans alone.

AMOM Outperformance
We believe results are made possible partly by AMOM’s flexibility in choosing the momentum period and by its monthly rebalancing, enabling better identification of the stocks likely to outperform others at any given time. Our model utilizes fundamental macro and price data as primary inputs, but does not include any sentiment information; rather, focusing on quantifiable data.

While 2023 has been harsh for momentum factors overall, AMOM was able to drive forward returns for its investors despite broader economic challenges and market-moving events, leaving peers falling behind.

We believe a key reason for Qraft’s position this year is that our model forecasted significant downside conviction for the financial sector and has thus excluded those stocks so far in 2023. It has proven to be an astute assessment, considering the poor financial sector performance in the first quarter, and especially as industry-driving institutions like Silicon Valley Bank and Signature Bank rattled markets with their collapses, but at the same time were able to enjoy the strong rally of Nvidia in this May.

Integrating AI
While investors may feel hesitant about straying from their traditional investment focuses, attractive opportunities are being presented by the development of AI technologies to supplement traditional portfolios. We feel it’s important for momentum investors to consider possibilities beyond just conventional ETFs or mutual funds.

Since there’s no guarantee that AI will always outperform traditional momentum funds, consider both options in a portfolio. This strategy can provide strong diversification and potentially better outcomes than applying either approach individually.

At Qraft AI ETFs, we aim to harness the vast power and potential of AI through innovative investment solutions. For those who haven’t yet tried AI-powered investing, we suggest that refreshing your strategy by integrating this technology could help you gain an edge.⁴

Disclosures
 

¹ The referenced performance may reflect unusually favorable conditions that are likely not sustainable and high growth can result in increased volatility. Past performance does not guarantee future results.

² Alpha is the measure that helps an investor evaluate the skill of a portfolio manager. A positive alpha means the manager is expected to outperform a benchmark index, such as the S&P 500, based on past performance.

³ Relative strength compares the performance of one investment or security to another, usually against a broader market index or a benchmark. Its aim is to identify securities that are exhibiting relatively stronger or weaker performance compared to their peers.

⁴ QRAFT AI-Enhanced U.S. Large Cap Momentum ETF: The Fund is subject to the risk that market or economic factors impacting technology companies and companies that rely heavily on technology advances could have a major effect on the value of the Fund’s investments. The value of stocks of technology companies and companies that rely heavily on technology is particularly vulnerable to rapid changes in technology product cycles, rapid product obsolescence, the loss of patent, copyright and trademark protections, government regulation and competition, both domestically and internationally, including competition from foreign competitors with lower production costs. Technology companies and companies that rely heavily on technology, especially those of smaller, less-seasoned companies, tend to be more volatile than the overall market.

Artificial intelligence selection models are reliant upon data and information supplied by third parties that are utilized by such models. To the extent the models do not perform as designed or as intended, the strategy may not be successfully implemented and the Funds may lose value. If the model or data are incorrect or incomplete, any decisions made in reliance thereon may lead to the inclusion or exclusion of securities that would have been excluded or included had the model or data been correct and complete. Service providers may experience disruptions that arise from human error, processing and communications error, counterparty or third-party errors, technology or systems failures, any of which may have an adverse impact.

Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about the Fund, please call 1-855-973-7880 or visit our website at www.qraftaietf.com. Read the prospectus or summary prospectus carefully before investing.

Distributed by Foreside Fund Services, LLC