Qraft's AI-powered ETFs wow Wall Street with winning stock picks

South Korea-based fintech startup Qraft Technologies Inc. captured the attention of Wall Street in May 2019, when it listed two artificial intelligence-powered exchange-traded funds (ETFs) on the New York Stock Exchange (NYSE).

Investors anticipated above-market returns from the two AI-enhanced ETFs, Qraft AI-Enhanced US Large Cap ETF (QRTF) and Qraft AI-Enhanced US Large Cap Momentum ETF (AMOM), as they are powered by AI technology, which picks stocks based on its forecast of share price movements and market data.

And they were not disappointed. At the end of last year, the two ETFs paid 3.85% and 5.21% of their market price as dividends, respectively, logging favorable returns.

“We built up credibility as an AI trading platform by cooperating with brokerage firms from early on. It laid the groundwork for us to offer our own products to retail investors," said Kim Hyung-sik, the chief executive of Qraft Technologies, in an interview with The Korea Economic Daily on July 13.

CEO Kim graduated from Seoul National University where he received a bachelor's degree in electrical engineering and a master's in economics.

During his final semester in graduate school, Kim and his friends developed an algorithm trading program that managed stock funds, which eventually led Kim to start his own company.

But the algorithm programming had its limitations. It was effective up until the early to mid-2000s when the stock market was relatively simple, but Kim needed to find an alternative as the stock market became more complex.

Kim came up with an idea for a deep learning trading program and developed an AI technology that picks and trades stocks based on previous market data. The deep learning technology also allowed for the AI robot to respond flexibly to market conditions and increase returns via logical reasoning and calculations.

Last September, the AI-enhanced AMOM ETF sold all of its Tesla stocks, which accounted for around 8% of the fund's portfolio, right before the dip when the AI program noticed that the market was overheated.

Such performance, alongside the company's long-term goals and high returns, have attracted investors. Earlier in March, venture capital firms Smilegate Investment and Dunamu & Partners decided to invest 10 billion won ($9 million) in Qraft Technologies. So far, the company has raised a total of 41 billion won.

The company's next step is setting up an AI-powered asset management platform.

"Most of the fintech companies such as Bank Salad and Toss are going to jump into the asset management segment, and likewise, we're aiming to position our company as a leading AI-powered asset management platform," said CEO Kim.

Write to Min-ki Koo at kook@hankyung.com
Danbee Lee edited this article.