Blackrock Inc., the world’s largest asset manager, is “turning to robots to drive its latest push into active exchange-traded funds,” according to a recent article in Bloomberg.
The article reports that, according to a recent statement by the firm, the funds (under the brand “iShares Evolved”) will choose holdings in industries such as technology, innovative health care and media entertainment based on machine learning and natural language processing. According to Jeff Shen, co-head of investments for the firm’s 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.” The article cites the example of Amazon, traditionally a top holding in most retail funds, but also considered a “giant among technology stocks.”
BlackRock’s so-called “systematic active equity group” will, says Shen, 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.
According to Josh Lukeman of Credit Suisse AG, the move may help BlackRock “make good on its prediction that half of U.S. investors will own an ETF by 2020.” However, while the new sector funds are less expensive than BlackRock’s legacy sector lineup (with fees of $1.80 versus $4.30 per $1000 invested), the firm could face a challenge in luring money away from the “cheap, uber liquid sector favorites out there,” according to Bloomberg Intelligence analyst Eric Balchunas.