Financial media outlets are beginning to cover AI and machine learning-driven ETFs, coming soon to a broker near you.
Most recently, CNBC covered an AI-driven ETF created by Robert Tull, head of Procure AM, an exchange traded product firm.
Tull says that while his AI-powered programs are not yet ready for deployment, his customers are already lining up at his door. Insurance companies are already doing their due diligence and derivatives desks have signed up.
Kirsten Chang filed this report for CNBC:
The key to this new technology is ensemble analytics, a type of methodology that uses multiple learning algorithms to better predict performance.
“The technology’s been around for years,” Tull said. “It’s just never moved into the asset management space, so [it’s about] getting data collected, running permutations against it and then really focusing on the best of the best selection that’s diversified.”
In other words, instead of picking individual stocks, Tull aims to make smart beta even smarter by extracting data from other ETFs and attempting to build the smartest of them all.
Smart beta involves the use of a rules-based system, or a series of factors, for selecting investments to include in a fund’s portfolio. These funds are governed by a specific set of rules and are typically weighted differently from the traditional market cap-based weighting scheme.
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The thinking behind this is that the collective wisdom of every smart beta ETF out there — including Goldman’s — is better than the mindset of any individual set of stock pickers. “You’re going to add the data to it that, quite frankly, a human brain just can’t digest,” said Tull.
