Artificial intelligence from Global X; CoCo bonds from WisdomTree

by , 10th May 2018

Today’s new ETF listings from around the world. 

USA

Global X lists AI and big data ETF

Global X, the thematic ETF specialist that was recently acquired by Mirae, is listing a new big data and AI ETF. The Global X Future Analytics Tech ETF (AIQ) will track companies that are likely to “benefit from the further development and [use] of artificial intelligence … [and] provide hardware which facilitates the use of artificial intelligence for the analysis of big data,” the prospectus says.

To be chosen in the index, companies must have a market cap of $500 million and be listed in a developed country or China. AIQ then puts companies in one of two categories:

  1. AI and big data developers. This includes companies that build AI, companies in big data and companies in cloud computing.
  2. AI and big data hardware companies. This includes companies that make semiconductors, memory chips, graphics cards, and other computer hardware. It may also include quantum computing, the prospectus indicates.

To be included in the index, the companies must fit in one of the above categories. Whether companies fit in these categories is judged “based on [an] analysis of public filings, products and services, official company statements and other information”, by the index provider, the prospectus says.

Companies are then ranked on how well they fit in these categories, with only the most highly ranked being included. The index will be weighted by market cap.

Analysis – a three legged tech ETF 

When Amplify listed its blockchain ETF (BLOK) some critics suggested it was just a high-priced tech ETF. BLOK’s stock selection method for blockchain companies was very broad, and allowed companies that had merely expressed an interest in blockchain to be included in its index. It even allowed companies that were partnered with another company that had expressed interest in blockchain to be included in the index. Eventually, Amplify met its critics halfway and renamed BLOK the “Amplify Transformational Data Sharing ETF”.

One wonders if something similar is happening here with AIQ. Only a very stretched definition of “artificial intelligence” would include graphics cards and semiconductor manufacturers. And when the investment strategy laid out in the prospectus suggests its open to investing in quantum computing (when – if ever – it’s commercially viable; when – if ever – it exists) something smells a bit off.

Global X has had more sensitive antennae than almost any ETF issuer for what the retail market in the US will gobble up. They’ve seen success with BOTZ and LIT based on a brilliant reading of the retail zeitgeist. Yet with AIQ, can they convince investors that this is really an AI fund?

London

WisdomTree lists CoCo bond and put-write ETFs

WisdomTree is listing two new ETFs that promise to add colour to the European alternative ETF space. They are:

  • WisdomTree AT1 CoCo Bond UCITS ETF (COCB, CCBO)
  • WisdomTree CBOE S&P 500 PutWrite UCITS ETF (PUTW, PUTS)

COCB will track an index of what are known as contingent convertibles bonds (CoCo). CoCos are a funny thing and straddle the grey line between equity and debt. On the surface, they are bonds, as they pay an annual coupon. But they sit on tier-1 (and sometimes tier-2) of banks’ capital structures – alongside equity, meaning they get paid out last. CoCos are a form of hybrid debt that are intended to convert into equity or have their principal written down to absorb the issuer’s capital losses upon the occurrence of certain triggers, such as the issuer falling below a specified liquidity ratio. They have come to the front since Basel III forced banks to boost their tier-1 capital and force markets to absorb risk posed by banks balance sheets. (Index factsheet here.)

PUTW exists already in the US under the same ticker, where it has $203m assets under management. It tracks an S&P 500 index that builds in an options strategy. PUTW employs an options strategy which includes, on a monthly basis, selling (or “writing”) at-the-money S&P 500 put options and investing the proceeds from that sale in US treasury bills. For assuming the risk of market losses through the put positions, the ETF earns a ‘volatility risk premium’ which can diversify investors’ sources of return and reduce the volatility of equity returns in portfolios.

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