Bring on the Robots


iShares lists active ETFs made by robots

iShares is listing a new suite of actively managed sector ETFs that bring in help from machine learning in determining what companies fit into which sectors. The iShares “Evolved” suite will put companies in seven sectors and deliberately sidestep the major classification system used by index providers.

  • iShares Evolved U.S. Healthcare Staples ETF (IEHS)
  • iShares Evolved U.S. Innovative Healthcare ETF (IEIH)
  • iShares Evolved U.S. Discretionary Spending ETF (IEDI)
  • iShares Evolved U.S. Media and Entertainment ETF (IEME)
  • iShares Evolved U.S. Financials ETF (IEFN)
  • iShares Evolved U.S. Consumer Staples ETF (IECS)
  • iShares Evolved U.S. Technology ETF (IETC)

Each ETF’s sectors – i.e. the eligible universe – are determined by machine learning and language processing on a big pile of publicly available data on US-listed companies. Once the sectors are sorted, companies are chosen across the size spectrum. Because of the fluid definition of sectors that will likely result from this process, it is possible that companies to be in several of the different sector ETFs, the prospectuses indicate. How BlackRock’s managers will pick stocks within each sector is not specified.


Analysis – humans are great

Sector ETFs are nothing new. What’s new here is BlackRock’s use of “machine learning” and “natural language processing”, to quote the prospectuses, to determine which companies fit in what sector. What press coverage of these products exists thus far has focussed on the fact that they are “built by bots”. And this new approach to building sectors – especially given the flaws in the prevailing GICS – is new and interesting.


But investors ought not to get ahead of themselves. Artificial intelligence is an area, like global warming, where expert opinion breaks with popular opinion. For experts, it’s unclear if AI exists and its human intelligence – not machine – that’s the real miracle. “In order for a computer to win [a game of chess], they have to use 100,000 watts of power continuously while a human brain is using 20 watts,” said Harvard’s Professor George Church. “We’re doing all kinds of things that computers can’t yet do. The thing is we’re ahead, and biotechnology is going faster than computer technology.”


The thing these new listings had me wondering was why not just let the managers picking stocks decide the sector?


Gabilli Funds new infrastructure ETF hopes to tap into Trump

Gabelli Funds is listing a new ETMF that targets roads, bridges and infrastructure, the Gabelli RBI NextShares (GRBIC). The fund will invest primarily in equity focused on physical asset development – particularly US infrastructure. Gabelli will pick companies it thinks are undervalued and “have the potential to benefit from domestic and global reinvestment and development of physical assets,” the prospectus says.


In particular, the fund hopes to tap into Trump’s “commitment to reinvest in American roads, bridges, and inland waterways,” the press release says. And GRBIC can “benefit considerably from infrastructure investment over the next decade and beyond.”



Lyxor cross-lists Korean ETF

Lyxor is cross-listing its Korean ETF over into Switzerland, the Lyxor MSCI Korea UCITS ETF (LYKRW). The fund has 115 million euros under management.