Today four funds are launching on different exchanges, including two actively managed municipal bond ETFs, a fund targeting “iconic” companies and an actively managed fund driven by IBM’s Watson computer.
An AI-Focused ETF
The AI Powered Equity ETF (AIEQ), a fund from ETF Managers Group, launched today. The fund is the first actively managed fund to be offered on the ETFMG platform.
The fund comes with an expense ratio of 0.75% and lists on the NYSE Arca.
EquBot co-founder and COO Art Amador points out that previously most AI-based strategies have only been available in the form of a hedge fund. His firm went with an ETF because “ETFs are inclusive by nature,” he noted.
Investing In The Information Age
What drives the new fund really though, is the explosion of information that has occurred in recent years. Amador cites a Bloomberg article that said 90% of the available information today was generated in the last two years. There is more data to analyze than ever before.
“The only way to understand it is to use artificial intelligence,” Amador added.
AIEQ uses a quantitative proprietary model from EquBot that runs primarily on IBM’s Watson platform, the prospectus says. The fund leverages the power of Watson, the IBM supercomputer, to analyze vast amounts of information on a daily basis, essentially doing the work of a multitude of equity research analysts.
“We’re utilizing publicly available financial data such as 10-Ks, 10-Qs and current market forecast data to build predictive financial models on over 6,000 publicly traded U.S. companies,” Amador said. “We analyze company management, company and market sentiment, and every day we’re analyzing more than 1 million regulatory filings, quarterly releases, news articles and social media postings.”
“We combine the social cues, the trading analytics, traditional financial ratios and news into financial models and build a U.S.-focused equity portfolio that aims to match the risk of the broader U.S. market and delivers superior returns,” he added, noting that EquBot uses Watson to process millions of “unstructured” market signals. The firm has several patents in place related to its investment process.
Leveraging The Data
EquBot’s model ranks U.S. stocks across the size spectrum on a daily basis with regard to how likely they are to benefit from the available information regarding economic conditions and current events, selecting 30-70 equities that show the greatest potential for appreciation over the next one-year period. The model indicates a recommended weighting for each company based on its appreciation potential and its correlations relative to the other companies held by the ETF. AIEQ’s managers aim to maintain a volatility level similar to that of the broad U.S. market.
IBM’s Watson has machine learning capabilities, which means it can improve upon its analysis approach as it gathers more and more data. Amador note that Watson’s learning capabilities mean that the fund will see improvements in things like trading and execution, and it’s more able to provide consistent performance across varying market conditions.
“It actually grows in value with age,” he said. “We at EquBot believe there’s actually a new era of investing—one not constrained by capitalization, factors or style, but dependent on data and information.”
The $9 million BUZZ US Sentiment Leaders ETF (BUZ), which launched in 2016, was the first fund to incorporate artificial intelligence into its approach; however, its strategy is mainly focused on identifying bullish sentiment about different companies through analysis of various media sources.