A Computer-Built ETF is a type of ETF that uses artificial intelligence
An exchange-traded fund (ETF) is a collection of securities that tracks an underlying index, sector, or theme. ETFs are traded on stock exchanges like regular stocks and offer investors exposure to a diversified portfolio of assets with low fees and tax efficiency.
A Computer-Built ETF uses artificial intelligence (AI) to analyze and classify companies based on their business models and trends rather than relying on traditional sector classifications. Computer-Built ETFs aim to capture the evolving nature of the economy and the market and to provide a more accurate and dynamic representation of the companies they invest in.
One example of a Computer-Built ETF is the AI-Powered Equity ETF (AIEQ), launched in 2017 by ETF Managers Group in partnership with the fintech firm Equbot. AIEQ uses IBM's Watson supercomputer to scan millions of data points from various sources, such as financial statements, customer behavior, market trends, and social media. Watson then uses natural language processing and machine learning to identify the key drivers of financial performance and to assign companies to relevant sectors based on their business distribution. AIEQ can adjust its real-time portfolio holdings based on changing conditions and opportunities.
Another example of a Computer-Built ETF is the suite of iShares Evolved Sector ETFs, launched in 2018 by BlackRock, Inc. These ETFs use natural language processing to analyze company filings and public information and to assign companies to multiple sectors based on their business exposure. For instance, Amazon.com, Inc. (AMZN), which is traditionally classified as Consumer Discretionary by the Global Industry Classification Standard (GICS), appears as both a Technology and a Consumer Discretionary company in the iShares Evolved Sector ETFs, reflecting its diverse operations and revenue streams.
The main benefits of Computer-Built ETFs are that they can provide more granular and timely insights into the companies they invest in and capture emerging trends and opportunities that may otherwise go unnoticed by conventional sector classifications. However, they also have some drawbacks, such as higher fees, lower liquidity, and higher complexity than traditional ETFs.
Computer-Built ETFs are an innovative way to invest in the market using AI technology. They offer investors a new perspective on categorizing and evaluating companies based on their actual business models and trends.