Life may get easier for traders seeking extra margins from a ‘buy the dip’ strategy.
A new AI-powered exchange-traded fund (ETF) leverages algorithms to identify and exploit price dip opportunities. The BTD Capital Fund (DIP) targets mostly large-cap stocks across various sectors on the S&P 500 and Nasdaq 100. DIP’s proprietary algorithm triggers buy and sell orders in the hope of profiting from predicted rebounds on the oversold stocks.
Launched by Chicago-based Kaiju ETF Advisors, DIP is an actively managed fund in the traditional sense. Yet, it also leans heavily on its propriety algorithm for determining its trading positions. Its AI model shifts through massive data sets and uses over 25 variables in its calculations to select stocks that are ideally ‘dipped.’ This short-term strategy sees a significant turnover in the ETF’s holdings, which changes daily.
DIP’s AI draws upon an array of peereviewed research from academia and industry. Its machine learning systems have fine-honed their predictions by analyzing over 15 years of intra-day market data.
Kaiju claims DIP is designed to perform in various market conditions, even in severe downturns. So despite the broad retreats seen during sustained bear markets, DIP’s AI seeks to identify stocks likely to rebound regardless of the market’s general sentiment.
Kaiju execs claim this type of fintech has been out of reach of most retail investors until now.
“Prior to DIP, this type of technology was only available to accredited and institutional investors in private funds,” Kaiju’s CEO Ryan Pannell told ETF.com, describing his firm’s product as an “AI system in an ETF wrapper.”
DIP will typically hold individual equities for up to a week, according to the fund’s prospectus. Extensions beyond seven days may be warranted, though, depending on its model’s signals.
This year’s bear market has brought the buy-the-dip strategy back into the limelight. According to a sample of 2,002 American netizens, 20% (or around 52 million people) planned to “buy the dip” in the first quarter of 2022. Of those surveyed, 15% already own equities and plan to buy more if the market declines significantly, while 5% do not yet own stocks but plan to buy for the first time if the market crashes.
Buying the dip sounds like a great idea, in theory. Yet investors who put it into practice often find themselves trying to time the market, which is notoriously difficult to pull off. DIP poses a solution to this problem.
For ETF investors, stock picking is sometimes ridiculed as trying to find the needle in the proverbial haystack. Investing in ETFs, by contrast, takes out the guesswork.
As Vanguard Founder Jack Bogle famously quipped, “Just buy the haystack.” Yet DIP seems to be giving this classic ETF investment logic a new spin – don’t buy the haystack, buy a needle finder.
Pannell said his fund’s “type of systematic trading” can “potentially find those needle-in-a-haystack opportunities by parsing data at a rate that exceeds human ability.”
The upkeep for this superhuman edge isn’t cheap though – the fund has an expense ratio of 1.25%.
DIP is currently trading around $25 on the NYSE Arca.
This article was produced and syndicated by Wealth of Geeks.
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