On Thursday, Merlyn.AI Corp. launched its first ETF, which is driven by artificial intelligence and switches its allocations between asset classes depending on market signals. The Merlyn.AI Bull-Rider Bear-Fighter ETF (WIZ) tracks an index that allocates among other ETFs based on price-trend, market momentum and value sentiment.
WIZ comes with an expense ratio of 0.95% and lists on the NYSE Arca.
The underlying Bull-Rider Bear-Fighter Index for WIZ implements some common artificial intelligence approaches: genetic algorithms, fuzzy logic and adaptive tuning. Essentially, the methodology evaluates more than 750 ETFs according to momentum criteria and selects up to eight of the top-performing momentum funds for its bull portfolio.
From there, it considers market characteristics when the market seems in danger of a downturn, and if that seems likely, switches to a bear market strategy that involves investments in fixed income and gold ETFs. The artificial intelligence component of WIZ allows the fund to update and improve its index methodology over time.
According to the fund’s prospectus, the switch between bull and bear market strategies is triggered by an algorithm based on three metrics: price-trend, market momentum and value sentiment. When at least one of the metrics turns negative and continues to decline, the bear strategy comes into play. When at least one of the metrics turns positive and the others are also increasing, the bull strategy is implemented.
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