Hi, I'm Matt. Welcome to AI Street, where AI meets Wall Street. Every Thursday, I share curated news, analysis, and expert interviews.

The Rundown 

• AI ETF Mimics Famous Investors

• 5 Minutes with Skadden’s Dan Michael

• SOLVE’s Predictive Bond Pricing Tool

• Retail Investors Turn $1 into 60¢: Study

• In Case You Missed It: Interviews

• Roundup

• AI + Gelato 🤖 🇮🇹 🍦 

INVESTING
AI-Powered ETF Aims to Emulate Famous Investors

Intelligent Alpha, a fintech startup, launched five exchange-traded funds that use ChatGPT, Gemini, and Claude as its "investment committee" to generate investment ideas inspired by well-known investors such as Warren Buffett, Stanley Druckenmiller, and David Tepper.

“We're recreating the very basics of [hedge fund] structure where we have these different inspirations for investors we really respect," Doug Clinton, CEO and founder of Intelligent Alpha, told Bloomberg.

The trio of chatbots will generate investment ideas across various sectors and geographies, which are then reviewed by a human analyst. The funds, which started trading on the Nasdaq Wednesday, have expense ratios ranging from 0.49% to 0.69%.

The Intelligent Omaha ETF uses the ticker AIWB, presumably an AI nod to “The Oracle of Omaha,” Warren Buffett.

The launch comes amid growing interest in AI-driven investment products, though their performance remains largely untested. Bloomberg Intelligence data shows only one of 16 AI-centered ETFs in the US outperforming the S&P 500 this year.

I’m curious how well these funds perform and whether or not assets grow. I imagine other similar ETFs are in the works. What do you think?

Here’s the prospectus.

5 MINUTES WITH
Skadden's Dan Michael on the SEC’s AI Stance

As AI reshapes financial services, regulators are grappling with how to oversee the transformative technology. The U.S. Securities and Exchange Commission is tasked with balancing innovation and investor protection in an increasingly AI-driven market.

To understand the SEC's approach, I spoke with Dan Michael, a partner at Skadden in New York City and former head of the complex financial instruments group in the SEC's enforcement division.

While the agency has initially focused on clear-cut cases of misrepresentation, more sophisticated enforcement actions are likely on the horizon. Michael draws parallels between the SEC's AI approach to its stance on cryptocurrency.

The discussion delves into:

• The current status of proposed rules, like predictive analytics

• The challenges of using AI while complying with existing regulations like Regulation Best Interest

• The complexities of proving intent in AI-driven trading

• The regulatory implications of AI's ability to process vast amounts of unstructured data

😄 We also have some fun imagining the SEC of the future — where an enforcement attorney is tasked with interrogating an algorithm. 🤖 

At Skadden, Michael is co-head of the law firm’s Web3 and Digital Assets Group, where he represents companies, executives and directors in connection with SEC and FINRA probes and examinations.

Hope you enjoy our chat!

This interview has been edited for clarity and length.

How might AI's capacity to handle unstructured data impact financial analysis?

AI's ability to transform unstructured data (e.g., PDFs, government filings) into structured formats opens up new possibilities for financial analysis. This capability is a game-changer for sophisticated hedge funds, allowing them to use AI tools to analyze vast amounts of data in ways humans never could.

It also raises potential legal and ethical concerns. The App Annie case is a relevant example. App Annie, a data aggregator, collected proprietary data from various sources, claiming it would anonymize and aggregate the information before sharing it. However, the company failed to fully sanitize the material non-public information (MNPI) before sending it to clients.

The SEC charged App Annie with anti-fraud violations, as hedge funds and other clients were using this improperly sanitized MNPI in their trading decisions. This case highlights the importance of understanding data sources and conducting due diligence, especially when dealing with AI systems that can process and utilize vast amounts of data from various sources.

See the full interview here

TRADING
SOLVE Launches Predictive Bond Pricing Tool

SOLVE, a fixed income market data platform, launched an AI-powered tool aimed at improving pricing transparency in the municipal bond market. SOLVE Px offers real-time pricing data for more than 900,000 municipal bonds — even those that haven’t traded in months.

Much of the pricing and trading data in the muni market is shared informally through emails and messages.

SOLVE’s system gathers quotes by parsing messages between market participants, using its Natural Language Processing model to organize and curate bids, offerings, trade chatter, and other relevant data.

"What the AI is doing is learning from all of those data sets. It's looking at trades, SOLVE Quotes data, and reference data,’’ said Eugene Grinberg, SOLVE’s founder and CEO. “The AI is learning from all of those and producing a prediction in real time.”

The prediction model is updated daily and can value easily traded and hard-to-sell securities. It adapts to changing market conditions and has a median average error rate of about 5 to 6 basis points, according to Grinberg.

The New York-based company plans to expand the product to other fixed income markets, including corporate bonds, syndicated bank loans, securitized products, credit default swaps (CDS), and private credit.

ACADEMIC RESEARCH
$1 Invested in Retail's Bullish Stocks Shrinks to 60¢: Study 📉 

A new study leveraging LLMs shows poor investing returns for retail investors posting on social media:

• Individual investors heavily relying on technical analysis tend to make poor stock picks. $1 invested in stocks with bullish technical sentiment from retail traders would shrink to less than 60 cents.

• Researchers from Purdue University and Baruch College analyzed 77 million StockTwits messages with Large Language Models (LLMs) — a type of analysis that was previously impossible due to the vast amount of unstructured data.

• Sophisticated AI-powered trading strategies generate 10%+ annual returns, largely by trading against these retail technical signals.

• Retail fundamental analysis fared better, positively predicting returns.

• Periods of intense technical discussion on StockTwits correlated with less informative retail order flows and increased herding behavior on platforms like Robinhood.

This large-scale LLM analysis reveals shows how this tech can be leveraged for analysis that really couldn’t have been done before. It’s pretty striking.

Study: Wisdom or Whims? Decoding Investor Trading Strategies with Large Language Models

Authors: Shuaiyu Chen, Lin Peng, Dexin Zhou.

INTERVIEWS
In Case You Missed It

Recent interviews from our “5 Minutes with” series:

• Stardog’s Matt Lucas on Hallucination-Free AI

• Celent’s Monica Summerville on AI Adoption in capital markets

• Aveni's Joseph Twigg on building a Finance LLM

• Persado’s Assaf Baciu on tailored AI marketing at banks

• Professor Alejandro Lopez- Lira on AI-driven stock predictions

ROUNDUP
Currency Traders Are Becoming ‘Algo DJs’ as AI Alters Roles

“Let’s be honest about it, at least for buy-side asset managers, we’ve become merely algo DJs at this point.” (Bloomberg)

Google DeepMind AI expert Joins Qube Resarch

Deepmind alumnus Grzegorz Swirszcz has joined Qube Research & Technologies in London as a quant research director. (eFinancialCareers)

'We're only in 1996': Why the AI boom is still in its earliest days, according to Bank of America

Bank of America says the artificial intelligence boom is in its early stages and it following the trajectory of the internet in the 1990s. (Business Insider)

Teens embrace genAI, but parents are out of the loop

Nearly three-fourths of teens have used at least one type of generative AI tool, most often for homework help, according to a recent study. (Axios)

CommBank builds AI Factory with AWS

Commonwealth Bank of Australia has teamed up with Amazon Web Services to launch an inhouse 'AI Factory' with the aim of accelerating the adoption of Generative AI. (Finextra)

BlackRock, Microsoft to Raise $30 Billion for AI Investments

BlackRock Inc. and Microsoft Corp. are teaming up on one of the largest efforts to date to bankroll the build-out of data warehouses and energy infrastructure behind the boom in artificial intelligence. (Yahoo)

🤖 🇮🇹 🍦 
AI & Gelato

For those of you that are new here, I moved to Milan in July after 15+ years in NYC. 

Worlds are colliding for me with this story on how a Milan Gelato shop is using AI to create new recipes:

See you next week!