The advent of artificial intelligence (AI) and machine learning has, in many ways, revolutionized the financial markets.
Beyond driving widespread automation and efficiency gains, which have themselves driven significant stock market gains in the past two years, these technologies can also be leveraged in a more practical sense.
Algorithmic trading is nothing new. In fact, by most estimates, a significant portion of trades are executed via automated systems. But for the longest time, these were the domain of institutional or professional traders.
Picks for you
Recent advances have significantly democratized access to such tools. One of the premier examples of that is the GPT Portfolio, a community project run alongside Dr Alejandro Lopez-Lira, a professor of finance from the University of Florida and the author of ‘The Predictive Edge’, a book that details how to leverage generative AI and ChatGPT in financial forecasting. Through the use of copy-trading platform Autopilot, the portfolio has $37.9 million in “assets under management”.
Per the project’s White Paper, the portfolio consists of 15 assets — 10 stocks and 5 sector-specific exchange-traded funds (ETFs). The portfolio holds the assets for one month — after which the AI run system conducts an analysis and rebalances accordingly.
On March 11, the portfolio was rebalanced — and this time around, with macroeconomic worries at the forefront, ChatGPT selected 3 safe haven stocks.
Buffett, blue chip healthcare, and consumer staples — ChatGPT’s safe haven stocks
The large language model’s (LLM) first pick was Berkshire Hathaway (NYSE: BRK.B). This diversified conglomerate has a strong track record of financial discipline and steady long-term growth. In addition, ChatGPT outlined Chief Executive Officer (CEO) Warren Buffett’s massive cash reserves and opportunistic investing during drawdowns are a potential edge.
On the other hand, the LLM highlighted that a general economic slowdown and high exposure to insurance and energy are BRK.B’s potential pitfalls.
Next up, ChatGPT selected Johnson & Johnson (NYSE: JNJ). The company has a strong balance sheet, reliable dividend payments, and defensive appeal due to operating in the non-discretionary field of healthcare. In all likelihood, the AI model selected JNJ stock to balance out the portfolio’s beta.
Conversely, the AI model noted that the company’s moderate leverage and slow earnings growth could limit its performance in a high-interest-rate environment.
Finally, the last addition to the portfolio was the Consumer Staples Select Sector SPDR Fund (NYSEARCA: XLP). As demand for household products tends to be recession-proof, the AI model likely selected XLP on account of its low volatility and steady revenue stream.
So, how would an equal investment into these three safe haven assets made at the start of the year have performed thus far? The two equity holdings, BRK.B and JNJ, are up 9.37% and 12.63%, respectively, on a year-to-date (YTD) basis.
In contrast, XLP has seen a much more modest degree of capital appreciation in the same period, currently standing at 1.64%.
Investing equally into these three assets would have netted a 7.88% return since the start of the year. For reference, the benchmark S&P 500 index is down 4.78% in that timeframe.
Featured image via Shutterstock
