Today Innovation Shares is rolling out a fund that covers the electric vehicle industry and the companies that support it. The Innovation Shares NextGen Vehicles & Technology ETF (EKAR), like the issuer’s other fund, tracks an index that is driven by artificial intelligence.
EKAR comes with an expense ratio of 0.65% and lists on the NYSE Arca.
The fund will go head-to-head with the recently launched KraneShares Electric Vehicles and Future Mobility Index ETF (KARS), which comes with an expense ratio of 0.69%, four basis points more than EKAR.
EKAR’s underlying index covers vehicles with electric motors powered by rechargeable batteries as well as self-driving vehicles, all of which are commonly referred to as next-generation vehicles. Eligible companies must meet liquidity and size requirements, including a minimum market capitalization of $100 million, and must be listed on a major stock exchange in a developed or emerging market country.
Natural Language Processing
From there, the methodology relies on natural language processing to evaluate the association between certain key words related to the electric vehicle theme and different securities. Companies must fall into one of four “stakeholder” groups: battery producers, original equipment manufacturers, suppliers, and semiconductors and software.
“By using the AI-driven process, our algorithm is able to identify and uncover stocks on a global basis that would be tougher for a normal analytical approach to identify,” said Innovation Shares Managing Director Matt Markiewicz.
Companies are ranked and scored within their stakeholder groups, with up to 25 of the top companies selected for each of the four groups. Within each group, the companies are weighted by market capitalization, subject to a 7% cap applied during the semiannual reconstitutions. Rebalancings occur quarterly.
As of mid-January, according to a fact sheet for the fund’s underlying index, the benchmark included 73 components, with 39% of that falling into the semiconductors and software category, 33% falling into original equipment manufacturers, 15% in suppliers and 12% in battery producers. Developed markets represent 84% of the fund, while emerging markets are 16%. The U.S. comprises the largest country, with a weighting of 41%.
The largest companies in the index are Toyota Motor Corp., Alphabet Inc. and Apple, each with a weight of roughly 7%.
Contact Heather Bell at [email protected]