Turning AI into ROI for Kiwi investors

Technology is transforming investing, reducing costs, and providing more opportunity.

Exchange Traded Funds are one of the fastest growing investment products in the world. In 2019, TIN sponsor company NZX and its funds business, Smartshares, launched two ETFs in New Zealand, which utilise the power of AI to offer investors access to companies globally that are at the forefront of technological innovation. Thom Bentley, Institutional Client Director at Smartshares, talked with TIN about how these products work, and how they can benefit Kiwi investors.

What is Smartshares’ core purpose?

Our aim is to provide Kiwi investors simple, low-cost, well-diversified funds that enable them to invest in a range of asset classes in a cost-effective way.

What’s your involvement in the New Zealand market?

Since we listed our first Exchange Traded Fund (ETF) on the NZX market in 1996, Smartshares has been at the forefront of passive investing in New Zealand. Starting from that first ETF (Smartshares NZ Top 10 ETF), Smartshares now manages almost $4 billion on behalf of over 70,000 Kiwis, and offers 31 different ETFs, which investors can use as building blocks to access global equity and fixed interest markets.

How has the ETF market evolved in recent years?

A great deal has changed since 1996 in terms of how easy it is to access the markets. Smartshares continues to work closely with emerging online investment platforms such as Sharesies and InvestNow to enable investors to access the whole range of ETFs, funds and individual shares in one place. We expect the use of online platforms to continue to encourage new investors into the markets, as the user experience gets ever better and the use of sophisticated online tools become more available at very low cost.

Do you offer exposure to the tech sector?

We have two thematic ETFs, the Smartshares Healthcare Innovation and Automation & Robotics ETFs offer investors access to companies globally that are at the forefront of technological innovation. These ETFs were launched in June 2019, and have performed well for investors, including through the recent market volatility as a result of COVID-19. The returns to the end of May 2020 are shown below:

Each ETF contains between 116 and 131 individual companies, so investors have broad diversification and don’t have to try to “pick winners” in each sector.

How do these ETFs work?

The construction of these thematic ETF portfolios makes use of leading-edge technology in the form of artificial intelligence (AI), enabling the ETF index provider to sort through thousands of company annual reports and accounts globally to identify those companies which qualify to be included. Using computer algorithms, this analysis is done in a fraction of the time and at a fraction of the cost of manual analysis.

Where do you see tech helping investors in the future?

We see great opportunities ahead using technology to ‘indicise’ the types of strategies used by active fund managers.

For example, AI is already used to screen companies based on factors such as ESG (Environmental, Social and Governance), low volatility and quality. Again, historically the work of identifying these types of companies required teams of analysts, but is now possible using AI and algorithms at a fraction of the cost. This means investors no longer have to pay high fees to get great returns.

Thom Bentley is Institutional Client Director at Smartshares. For more information about the Smartshares Healthcare Innovation and Automation & Robotics ETFs, contact him via the Smartshares website.