This Week's ETF Launches: Little Harbor Uses Artificial Intelligence for New Tactical ETF

A little over a week after iShares dropped their new “Evolved” line of ETFs on the marketplace, newcomer Little Harbor Advisors joins the party with its own artificial intelligence-fueled offering. Not to be outdone, iShares adds two more products to its lineup that could be very timely in the current economic environment.

Here are this week’s new fund launches:

For a list of all new ETF launches, take a look at our ETF Launch Center.

The trend of using artificial intelligence to manage a portfolio seems to be growing almost daily in the ETF world. Little Harbor Advisors is using it in a very straightforward way with the launch of the LHA Market State U.S. Tactical ETF (MSUS). Using a momentum-based strategy, the fund’s adviser will actively manage the portfolio by performing a statistical analysis on the distribution of equity prices to determine how exposed it should be to equities at any given time. The fund’s exposure could be as little as 0% and as much as 160% of net assets.

To achieve normal equity exposure, the fund will use a portfolio of ETFs that the adviser believes has the greatest probability of outperforming, on a risk-adjusted basis, the broader U.S. equity market by looking at factors, such as strategy, holdings, performance, volatility and expense ratio. If the advisor chooses to go above 100% exposure, it will utilize futures contracts to create additional leverage. The fund’s objective is to outperform the broader U.S. stock market on a risk-adjusted basis.

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BlackRock continues to expand its ever-growing ETF lineup with a pair of economically relevant offerings.

The iShares U.S. Infrastructure ETF (IFRA) looks to provide exposure to U.S.-based companies that stand to benefit from potential increases to infrastructure investment. In other words, if Congress decides to pass its long-rumored infrastructure bill, the companies in this fund could benefit the most. In order to qualify for the index, companies must derive at least 50% of their annual revenue from the United States. The fund’s index provider splits potential components into two distinct groups – owners and operators, which could include railroads and utilities, and enablers, which could be companies that provide raw materials or construction services. The two groups each account for half of the overall portfolio, with the components within each group receiving an equal weight. The underlying index for the fund will be reconstituted annually, with weightings getting rebalanced quarterly.

The other new fund is the iShares Bloomberg Roll Select Commodity Strategy ETF (CMDY). This fund invests in futures contracts on as many as 20 physical agricultural, energy, precious metals and industrial metals commodities. The “roll” part of the ETF’s name comes from its need to roll out of existing positions in the underlying futures contracts and establish new positions on an ongoing basis. One of the fund’s biggest benefits is that it does not require K-1 tax reporting. The Schedule K-1 is the tax form used to report income and losses from partnerships. Many commodities-based funds issue K-1’s, which can make individual tax reporting much more complicated. CMDY will issue traditional 1099 tax forms, if needed. The fund’s expense ratio of just 0.28% instantly makes it one of the cheapest commodities funds available to investors.

The reason for the launch of the iShares U.S. Infrastructure ETF is pretty clear. If the infrastructure bill gets passed, a lot of attention will be focused on this sector. Its focus on U.S.-based business will also add some likely appeal, as investors should be less impacted by any potential trade war with China. The Commodity Strategy ETF is also making its debut at an interesting time as its holdings could easily be impacted by tariffs as well. The debut product from Little Harbor is an intriguing entry into the AI space. This won’t be the first fund to use the technology to build its portfolio, but its use of AI to determine both the level of equity exposure and the composition of the underlying funds used to execute the strategy makes for an interesting product.

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