Need to Know: This fund driven by artificial intelligence is ditching big tech. Here’s what it’s doing instead.

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The megacap tech stocks have had a solid if not spectacular 2021. Heading into the final days of the year, Google parent Alphabet
GOOG,
-1.09%

has soared 67%, while Amazon.com
AMZN,
+0.58%

has only gained 5%, as founder Jeff Bezos exited for quite literally greater horizons. The NYSE FANG+
NYFANG,
-0.76%

index, which includes the five core FAANG stocks (Facebook, Amazon, Apple , Netflix and Google) plus a handful more including Nvidia and Tesla, has gained 19% — underperforming both the S&P 500
SPX,
-0.10%

and Nasdaq Composite
COMP,
-0.56%
.

The artificial-intelligence Powered Equity ETF
AIEQ,
-0.65%

seems to have caught on. It’s an exchange-traded fund that uses IBM Watson to pick stocks, and now it doesn’t have any of the megacap tech giants in its top 10 holdings. Jessica Rabe, co-founder of DataTrek Research, points out that as recently as September, Apple
AAPL,
-0.58%
,
Microsoft
MSFT,
-0.35%
,
Amazon and Alphabet were its top four positions, making up nearly a quarter of the exchange-traded fund. Even in November, Microsoft, Alphabet and Amazon accounted for about 15% of the fund. Now, only Apple of the FAANG stocks is in the portfolio.

What is the fund doing now? It still has a smattering of tech stocks in its top 10, led by microchip maker Advanced Micro Devices
AMD,
-0.78%
,
but also investments including diabetes monitoring system maker Dexcom
DXCM,
-7.09%

and electrical-system maker Eaton
ETN,
+0.31%
.
There’s also a bit of a cybersecurity theme with both Palo Alto Networks
PANW,
-0.64%

and Fortinet
FTNT,
-0.45%

in its top 10.

“AIEQ has been diversifying its holdings in a host of industries and putting most of its capital to work. That’s in contrast to this past September, for example, when it placed more concentrated investments in well-known companies amid that choppy month for U.S. equities. This latest approach reflects the current positive investment environment with the S&P near record highs,” says Rabe.

The buzz

Tesla
TSLA,
-0.50%

CEO Elon Musk sold another $1 billion of stock in the electric-vehicle maker, according to Securities and Exchange Commission filings, to pay the taxes for the exercise of a 1.55 million share option. That should wrap up his preplanned stock sales for this year.

Apple
AAPL,
-0.58%

is reportedly paying up to $180,000 to prevent employees from moving to tech rivals including Meta Platforms
FB,
+0.01%
,
according to Bloomberg News.

The advanced trade in goods report is due, with pending home sales data set for release shortly after the open.

The World Health Organization reported that the number of COVID-19 cases worldwide climbed 11% last week, with Europe having the highest infection rate of any region.

The market

Stock futures
ES00,
+0.09%

NQ00,
+0.22%

were leaning higher after a pause in the rally on Tuesday.

The yield on the 10-year Treasury
TMUBMUSD10Y,
1.498%

was 1.49%. One big move was in European natural-gas contracts, with the lead U.K. contract
GWM00,
-4.41%

tumbling 8% as a combination of warmer weather, U.S. supplies and Norwegian output moved prices off recent highs.

Top tickers

Here are the top tickers on MarketWatch, as of 6 a.m. Eastern.

Ticker

Security name

TSLA,
-0.50%
Tesla

AMC,
-3.41%
AMC Entertainment

GME,
-1.25%
GameStop

DXY,
+0.02%
U.S. dollar index

DJIA,
+0.26%
Dow Jones Industrial Average

ES00,
+0.09%
E-mini S&P 500 futures

NIO,
-1.10%
NIO

AAPL,
-0.58%
Apple

TMUBMUSD10Y,
1.498%
U.S. 10 Year Treasury

NVDA,
-2.01%
Nvidia

Random reads

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