Palo Alto-based Merlyn.AI has launched two new ETFs: the Merlyn.AI SectorSurfer Momentum ETF (DUDE US) and the Merlyn.AI Best-of-Breed Core Momentum ETF (BOB US).
Merlyn.AI has expanded its offering of algorithm-driven, AI-powered ETFs.
Listed on Cboe BZX Exchange, the funds deploy artificial intelligence, including adaptive tuning, fuzzy logic, and genetic algorithms, to navigate financial markets tactically.
The funds are structured as ETFs of ETFs, seeking to provide exposure to momentum leaders during bull markets and defensive leaders in bear markets.
Tactical asset allocation is determined by a proprietary market-risk indicator which assesses the risk of US equity markets using four key metrics: price trend, market momentum, value sentiment, and market volatility.
When the indicator signals a bull market, both funds employ a 100% equity allocation.
The Merlyn.AI SectorSurfer Momentum ETF is referenced to the MAI SectorSurfer Momentum Index. The index evaluates more than 150 US-listed ETFs and seeks to select a portfolio of six: four sector-based ETFs and two regional global ETFs. Each is selected on the basis of having the highest expected subsequent monthly return performance relative to other ETFs in its category.
The Merlyn.AI Best-of-Breed Core Momentum ETF is referenced to the MAI Best-of-Breed Core Momentum Index. This index evaluates more than 70 US ETFs having over $10 billion of assets under management. It selects a portfolio of three: one sector-based ETF, one factor-based ETF, and one regional global ETF. Like DUDE, each is selected on the basis of having the highest expected subsequent monthly return performance relative to other ETFs in the category.
When a bear market is indicated, both DUDE and BOB automatically switch to a portfolio of defensive leaders in an attempt to avoid bear market losses. Eligible defensive funds include Treasury ETFs, aggregate bond ETFs, corporate bond ETFs, high-yield bond ETFs, and gold ETFs.
DUDE has total annual fund operating expenses (which includes acquired fund fees), after fee waivers, of 1.32%; BOB is somewhat cheaper, coming in at 0.85%.
Scott Juds, Co-founder and CEO of Merlyn.AI, said: “While the industry’s interest in artificial intelligence remains focused on neural networks and the belief that one AI tool can solve everything, the technology driving Merlyn.AI ETFs takes a divide-and-conquer approach by using the best tool for each job. Our ETFs employ a trifecta of AI tools, including Adaptive Tuning that seeks to eliminate hindsight bias in the momentum algorithm; Fuzzy Logic that analyzes multiple market indicators and seeks to assess the market’s bull vs. bear status; and Genetic Algorithms that evolve its underlying strategies and seek to eliminate hindsight selection bias.”
He added: “Risk is not a one-dimensional problem cured by a single dose of diversification. It’s a multi-dimensional problem and simple diversification is just a start. Merlyn.AI’s research shows that the most proficient way to reduce risk is to try to avoid it – specifically aiming to avoid investing in portfolio laggards, bear markets and black swans. This requires reliable measures of momentum. That’s our strong suit, and we think we do it better than anyone in the market today.”
DUDE and BOB follow Merlyn.AI’s less aggressive predecessors: the Merlyn.AI Bull-Rider Bear-Fighter ETF (WIZ US), an 80/20 equity/fixed income allocation ETF, and the Merlyn.AI Tactical Growth and Income ETF (SNUG US), a 30/70 allocation ETF.
Combined, these funds have gathered more than $200 million in assets since their inception.