It appears the exchange-traded product industry is showing signs of maturing, at least in terms of product creation. While the 267 new funds in 2018 is an impressive number, that was three short of the prior year’s output of new funds. Meanwhile, closures increased 10%, to 152.
Does this mark the end of the industry’s rocket-like growth? Maybe. (How’s that for a bold prediction?) Most likely, we’ll continue to see a steady stream of new products rolling off the assembly line that attempt to invest in untapped corners of the investment universe (are there many of those corners left?). In addition, we’ll see new exchange-traded funds that take different approaches to investing in the existing corners of that universe. Specifically, I’m talking about the small but growing number of ETFs that employ artificial intelligence to create portfolios. AI, which encompasses components such as machine learning and natural language processing, is making inroads in the investment management space and will inevitably play a larger role going forward. According to one estimate, machine learning could be involved in 99% of investment management within a quarter century.
BlackRock and State Street have brought to market AI-driven ETFs that take a fresh look at how sectors are classified and/or how companies fit within sectors. A new company, EquBot, is all-in on AI and betting the farm that it’s the future of ETFs—or at least the future for the firm’s own small lineup of ETFs. Our cover story looks at this trend and its potential implications for ETFs and the investment management field as a whole.
AI is very scientific, but some might consider it a leap of faith to expect it will provide the secret sauce to deliver consistent outperformance. In a different realm, some investors wonder whether investing in one of the small but growing number of faith-based ETFs is its own leap of faith. The first wave of ETFs screening for religious values came and went earlier this decade, but a second wave is now upon us. Do these funds make sense for both believers and non-believers? Our story on this topic provides a thorough look at this intriguing slice of the ESG investing universe.
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