This ETF Is Crushing the S&P 500 With AI Bets

The artificial intelligence boom is handing a big win to hedge funds angling for an edge.

The $127 million Goldman Sachs Hedge Industry VIP exchange-traded fund (ticker GVIP), which scans 13F filings to build a portfolio of popular hedge fund picks, has rallied more than 16% so far in 2023, Bloomberg data shows. That compares to a nearly 10% climb for the S&P 500.

GVIP’s 2023 outperformance is largely thanks to its three largest holdings: AI-darlings Nvidia Corp., Broadcom Inc. and Advanced Micro Devices Inc.

Paced by Nvidia, the chipmakers have surged over the past month as hype builds around the technology, which was a hot topic in the latest round of corporate earnings.

While GVIP has lagged the S&P 500 since its inception in late 2016, the ETF’s returns suggest that hedge funds were able to get ahead of the AI craze.

“GVIP and the underlying fundamentally-driven hedge fund managers being tracked deserve some credit for properly positioning ahead of the recent AI mania,” said Nate Geraci, president of The ETF Store, an advisory firm. “That said, every dog has its day.”

GVIP is rebalanced quarterly and consists of the 50 stocks that appear most frequently among the top ten holdings of US hedge funds. Its holdings are equally weighted at each reshuffle.

Typically, the ETF tends to do well during periods that see tech and growth stocks outperform, and trail when risk appetite sours, according to Geraci. As such, GVIP underperformed in 2022 with a 32% plunge, compared to the S&P 500’s 19% fall.

Even with a spotty track record, GVIP’s showing so far in 2023 is a win in a year that saw most active managers caught flat-footed by the AI euphoria.

According to a Credit Suisse report dated May 22, the largest underweights among active managers include Apple Inc., Tesla Inc., Nvidia, Amazon.com Inc. and Microsoft Corp. — a group that’s responsible for roughly two-thirds of the S&P 500’s 2023 gain.

Nvidia, GVIP’s top holding with a 2.5% weighting, has surged about 170% this year. GVIP added shares of the chipmaker in November 2022, according to data compiled by Bloomberg.

Despite the strong showing, GVIP is nursing year-to-date outflows of nearly $22 million.

The ETF may continue to struggle to attract investors, according to Bloomberg Intelligence’s Eric Balchunas. While GVIP is besting the S&P 500, tech-heavy funds such as the $189 billion Invesco QQQ Trust Series 1 (QQQ) have surged 21% this year.

“With a fund like this, people might say, ‘I don’t need this. I’ll just buy QQQ,’” said senior ETF analyst Balchunas. “When it comes to performance, given the way investors seem to be shy about getting into equity markets, I don’t see this mattering much for the fund.”

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