At its core, the fund is powered by an algorithm that looks for companies with the best potential to deliver returns that outperform a basic index. Most ETFs are passively managed and follow indexes like the S&P 500, the Dow industrials or other sectors.
AIEQ joins a small but growing list of actively managed offerings in the $3.2 trillion space.
“Everyday, there is more information, not less,” said Art Amador, co-founder and chief operating officer of EquBot, which launched the fund in partnership with ETF Managers Group.
“That information explosion has made the jobs of portfolio managers, equity analysts, quantitative investors and even index builders more challenging,” Amador added in a statement. “New technology in artificial intelligence helps solve those challenges and we’re very pleased to be bringing AIEQ to market to make an AI approach to investing available to all.”
The fund currently is composed of 70 stocks, plus an allotment of cash, that are spread around sectors. Components are determined by “their probability of benefiting from current economic conditions, trends, and world- and company-specific events,” EquBot said in a news release.
The top five holdings by concentration are Penumbra, Genworth Financial, Boyd Gaming, Mednax and Triumph Group, according to XTF.com. The weightings range from 4.64 percent for Penumbra to 3.45 percent for Triumph.
“That’s a gutsy structure,” Colas said. “You’re putting your money where your mouth is if you’re concentrating positions. That’s an active-style portfolio. There is nowhere to hide. This is not a closet indexer.”
The fund’s expense ratio is 0.75 percent, or 75 basis points. That’s more expensive than a typical passive ETF, with an average ratio of 0.58 percent, but a bit cheaper than other actively managed ETFs, which average 0.85 percent.
While small, with just a $7 million asset value so far, AIEQ could be the beginning of a trend.
“Somebody’s got to be first,” Colas said. “If it works, it’s going to have a lot of competition pretty quickly.”