Is artificial intelligence the next hot thing in ETFs? One big-name investor seems to think so.
On Friday, ETF Managers Group filed for the Rogers AI Global Macro ETF (BIKR), blending two popular elements in finance—Jim Rogers and artificial intelligence.
BIKR will track an index of single-country ETFs that was developed by Ocean Capital Advisors, a company headed by Rogers, the famous commodity investor and author of several best-selling books on the topic. Rogers’ Ocean Capital will also act as the sponsor of BIKR.
To help choose which ETFs to buy, the fund will use an AI-driven algorithm that analyzes macroeconomic data “to identify likely changes in market directions in individual countries and within the global economy” over the next 18-month period.
Rogers Ventures From Commodities
The AI fund won’t be Rogers’ first foray into the ETF world, but it will be the first time his name has been associated with an ETF that has nothing to do with commodities.
Funds like the $232 million Elements Rogers International Commodity Index-Total Return ETN (RJI) and the $95 million Elements Rogers International Commodity Index-Agriculture TR ETN (RJA) have decent amounts of assets for relatively niche products, but with commodities out of favor with investors, Rogers is smartly putting his name on a product with more potential.
Rising Popularity Of AI
AI is the buzzword du jour in the ETF industry. The first AI-powered ETF of its kind, aptly named the AI Powered Equity ETF (AIEQ), launched in October 2017 and quickly gathered $138 million in assets. Then in March 2018, ETF heavyweight iShares launched seven sector funds that use artificial intelligence to decide which stocks to hold. Fast- forward to last week, when Equbot followed up on its successful launch of AIEQ with an international version of the fund, the AI Powered International Equity ETF (AIIQ).
AIEQ, currently the most popular AI fund, and BIKR’s main competitor, harnesses IBM’s Watson supercomputer to sort through countless pieces of data, which fund managers then use to pick 40-70 stocks to hold. It’s an actively managed fund and has a 0.75% expense ratio.
Meanwhile, BIKR, a passive fund with a 1.18% total expense ratio, will use a proprietary AI-driven algorithm to choose ETFs, not individual stocks, to hold. Most of the exchange-traded funds are broad single-country ETFs, but it can also choose to hold a one- to three-year Treasury bond ETF.
The weight of any single-country ETF is capped at 10%, and from time to time, the fund may be significantly allocated to a Treasury ETF.
As of June 4, there were 39 country ETFs represented in the index. The top holdings were Treasuries (25%), Brazil (7%), South Korea (4%), Hong Kong (4%) and Mexico (4%).
While similar in their use of AI to aid in investment decision-making, the differences between AIEQ and BIKR are stark. The latter aims for a global portfolio and exclusively holds ETFs; the former focuses on the U.S. and holds individual stocks.
AIEQ is actively managed, while BIKR will track an index. BIKR may hold a substantial position in Treasuries; AIEQ does not.