BlackRock Inc., the world’s largest asset manager that has a multitrillion-dollar kingdom of passively managed portfolios, is turning to robots to drive its latest push into active exchange-traded funds.
The firm is starting a suite of ETFs under the “iShares Evolved” brand. The funds will pick their holdings in industries such as technology, innovative health care and media entertainment based on machine learning and natural language processing, according to a BlackRock statement Friday.
“We’ve learned that one size just can’t fit all,” said Jeff Shen, co-head of investments for BlackRock’s Systematic Active Equity group. “The old days of thinking that companies do one thing and one thing only is long behind us and with that comes the recognition that a particular company can belong to various sectors.”
For example, consider Amazon.com Inc., which traditionally is a top holding in most retail funds. But the company has evolved to the point where it’s also considered a giant among technology stocks. So Amazon will be a holding in the new iShares Evolved U.S. Technology ETF (ITEC), one of the seven new funds.
The new suite of funds also includes the iShares Evolved U.S. Consumer Staples ETF (IECS), iShares Evolved U.S. Discretionary Spending ETF (IEDI), iShares Evolved U.S. Financials ETF (IEFN), iShares Evolved U.S. Healthcare Staples ETF (IEHS), iShares Evolved U.S. Innovative Healthcare (IEIH), and iShares Evolved U.S. Media and Entertainment (IEME).
BlackRock’s so-called systematic active equity group will be able to use natural language processing to give investors more forward-looking views of sector definitions because the information can be obtained by scanning regulatory filings, Shen said. So investors are likely to see movement in the funds’ holdings every month.
Everything AI
The demand from millennial investors for “everything AI” has become insatiable, according to Josh Lukeman, head of ETF market making for the Americas at Credit Suisse AG. This may help BlackRock make good on its prediction that half of U.S. investors will own an ETF by 2020.
“As ETF classifications evolve, AI technology could be at the forefront in stretching self-indexing to its limits, spawning a new era in ETF issuance,” he said.
The new sector funds are cheaper than BlackRock’s legacy sector lineup, with fees of $1.80 for every $1,000 invested compared with $4.30 for the firm’s earlier suite.