Innovation Shares, a sponsor of thematic ETFs, has unveiled the Innovation Shares NextGen Vehicles & Technology ETF (EKAR US) on the NYSE Arca. The fund uses an Artificial Intelligence (AI) stock selection approach to track the global electric and driverless vehicles market.
Innovation Shares unveils NextGen Vehicles & Technology ETF (EKAR)
Morgan Stanley believes the global electric vehicle market could rise to $2.7 trillion by the year 2040, while a report from Bloomberg New Energy Finance projects that 33% of cars and 54% of new car sales will be electric by that time.
The methodology behind the fund’s underlying Innovation Labs Next Generation Vehicles Index involves a natural language processing algorithm that screens for global stocks that have exposure to the theme of electric and automated vehicles.
Matt Markiewicz, managing director of Innovation Shares, stated, “By using the AI-driven process, our algorithm is able to identify and uncover stocks on a global basis that would be tougher for a normal analytical approach to identify.”
To be eligible for the index, stocks must be listed on a major exchange in either an emerging or developed market and have a market capitalization of no less than $100 million.
A natural language processing algorithm then screens the resulting universe for keyword associations to the electric and automated vehicle theme. Following this, companies are segregated into four groups: battery producers, original equipment manufacturers, suppliers, and semiconductors and software.
Companies are ranked and weighted by market cap within each group, with up to 25 of the top companies from each group making the final cut. A cap of 7% per constituent is applied to promote diversification. Reconstitution and rebalancing occur on a semi-annual and quarterly basis respectively.
EKAR has an expense ratio of 0.65% due to a contractual fee waiver in place until at least April 2019. Its gross expense ratio is 0.95%.
A similar AI driven patent-pending indexing approach also underlies the Innovation Shares NextGen Protocol ETF (KOIN), which provides exposure to companies poised to benefit from blockchain technology.
EKAR offers direct competition to the recently launched KraneShares Electric Vehicles and Future Mobility Index ETF (KARS US). KARS tracks the Solactive Electric Vehicles and Future Mobility Index and has an expense ratio of 0.69%.