ETF Edge

One unique method of picking stocks is outperforming the market this year

This group of under-the-radar tech stocks are beating the market

One of the best stock pickers on Wall Street isn't even human.

The artificial intelligence (AI) powered equity exchange-traded fund (ETF), or AIEQ, has nearly doubled the gain of the S&P 500 so far this year. Powered by IBM's artificial intelligence Watson, this actively managed portfolio is the first of its kind, said Sam Masucci, founder and CEO of ETF Managers Group, which operates the fund.

"Literally it's looking at 6,000 stocks every single day, millions of pieces of information to whittle that down to a portfolio of 75 to 100 stocks," Masucci told CNBC's "ETF Edge" on Monday.

The AI-powered stock picker analyzes the equivalent data load of 1,000 research analysts, to identify the stocks that could outperform the rest of the market. The list is dynamic: As of the end of December, its top 10 holdings included high-flying tech ("FANG") stocks Alphabet, Amazon and Netflix, as well as wholesale retailer Costco, and health-care company Baxter International.

"It's looking for value," Masucci said about the stock-picking process. "It does that based on what it expects to happen in a particular sector. It is sector agnostic ... they will go in and look at all the financials, the 10-Qs and that type of thing, but on top of that, they'll dive into social media and find out what social media is saying about the underlying constituents."

While the AIEQ lagged the broader market in 2018, it has surged so far this year. The ETF is up 11 percent in January, beating the S&P 500's 6.5 percent increase.

Tom Lydon, CEO of Global Trends Investments, has a different play on the cutting edge of technology: The ARKK innovation ETF.

"It's got robotics, AI, it's got DNA genome sequencing — areas of the market that really if you're looking for the future of technology stocks, it's all here," Lydon said Monday on "ETF Edge."

He added: "It's very high conviction. There are about 30 stocks in there, but it covers all of the futuristic technology sectors."

The ARKK ETF has performed even better than the AIEQ ETF so far this year. It has risen 15 percent in January, and was positive in the past three months compared with a 4 percent decline for the S&P 500. Its best performers in 2019 include NanoString Technologies, Netflix, and Square.