Merlyn.AI launches multi-asset momentum ETF driven by AI

Oct 18th, 2019 | By | Category: Equities

FACTOR INVESTING - THURSDAY 14TH JULY 2022 (08:15-11:30) - THE BERKELEY, LONDON Please join us for our annual factor investing breakfast briefing with participation from MSCI, FlexShares ETFs, Tabula and Professor Stefan Zohren, Deputy Director of the Oxford-Man Institute of Quantitative Finance. Please register now if you would like to attend.


California-based Merlyn.AI Corporation (MAI) has become the latest entrant to the ETF industry with the launch of the Merlyn AI Bull-Rider Bear-Fighter ETF (WIZ US) on NYSE Arca.

Merlyn.AI launches AI-driven risk managed ETF

The fund uses AI to provide multi-asset exposure to market segments with high momentum.

The fund harnesses MAI’s proprietary research into artificial intelligence (AI) to provide multi-asset exposure to high momentum market segments.

It also aims to adapt to changing market conditions by shifting into safe-haven assets when risk is perceived to be rising.

“Most investors want an ETF that improves returns in both bull and bear markets,” said David Epstein, MAI CEO and Co-Founder. “WIZ seeks to do just that.”

The fund is linked to the Bull-Rider Bear-Fighter Index, created by the firm’s newly formed indexing division – MAI Indexes.

During bull markets, the index starts with an 80/20 allocation to equities and bonds which is typical of a classic growth portfolio.

The index consists of eight asset class categories with the following weights: Sectors-I (20%), Sectors-II (15%), Countries (15%), Regions (10%), Factors (10%), Stylebox (10%), Bonds-I (10%), Bonds-II (10%).

Each category is represented by a single ETF that has the strongest momentum among a diverse range of candidate ETFs. When selecting the momentum leader for a particular category, the index uses twelve different momentum models with each model consisting of its own mix of candidate ETFs. The category then selects a momentum leader among the twelve ETFs put forth by the various models.

The methodology also uses a form of AI, known as Genetic Algorithms, to continuously evaluate and expand the universe of ETFs within each category and momentum model in a bid to improve risk-adjusted returns in the future.

The index is reconstituted and rebalanced monthly. According to the methodology document, each of the eight index categories is expected to turn over approximately five times per year.

The methodology also incorporates a Bull/Bear Indicator which is published on a daily basis and highlights when equity market risk is rising above an undesirable threshold. The indicator uses another form of AI, known as Fuzzy Logic, to evaluate fourteen measures of three different views of the market, namely price-trend, market momentum, and value sentiment.

When the Bull/Bear Indicator rises above its threshold, the index switches its entire allocation to a mix of safe-haven assets including US Treasuries, other highly rated bonds, and gold.

The ETF comes with an expense ratio of 0.60%.

Sue Guzman, COO of MAI, commented, “Better performance requires the resolution of multiple problems. While the industry is currently focused on neural networks and the belief that one tool can solve everything, WIZ takes a divide-and-conquer approach by using the best AI tool for each problem.

“As a result, this Merlyn.AI ETF seeks to avoid market risk instead of merely diluting it through diversification, a process that typically draws down overall portfolio performance by including laggards.”

MAI Indexes has also developed another index – the MAI Tactical Growth & Income Index – which may signal MAI’s intention to roll out additional ETFs down the line. The index follows a similar methodology to that described above. The main difference, however, is the bull market portfolio consists of a 70/30 allocation to fixed income and equities.

Tags: , , , , , ,

Leave a Comment