This Week: First Trust/Bloomberg/New Constructs, Cboe/Metaurus, LTX/MultiLynq, and more

First Trust, Bloomberg plan ETF using AI-driven analysis from New Constructs

First Trust and Bloomberg have filed the prospectus for the New Constructs Core Earnings Leaders ETF. The new equities fund will be based on an AI-driven stock analysis process provided by investment research firm New Constructs.

David Trainer, CEO of New Constructs, says that the ETF will leverage “an AI that scans financial filings to produce a new, superior measure of earnings and valuation”. Crucially, the process also takes into account ‘hidden’ information found in footnotes and management discussion and analysis.

By comparing the ‘core earnings’ metric resulting from this process with reported earnings, the ETF aims to identify undervalued companies in the Bloomberg US 1000 Index.

New Constructs started building its technology 20 years ago, with the aim of collecting accounting data and translating it into economic analysis. Trainer previously told WatersTechnology that he was “catapulted” into the data business after being profiled by Harvard Business School and cited in research by Harvard and the Massachusetts Institute of Technology’s Sloan School of Management.

“In the beginning, we very carefully and very slowly started collecting the data for just a couple of hundred companies, then the S&P500. And over time, as we collected more and more data, we created more and more machine language instructions. Now, we’re at a place where the machines handle over 90% of all the data—sometimes 100%. And our humans spend time dealing with accounting rule changes and abnormal disclosures,” Trainer says.

Passive ETFs based on an automated methodology were worth around $13.3tn in the US at the end of 2023. But Trainer cautions that AI must be used carefully for stock picking and ratings, as not all models are made equal. “Algorithms are only as good as the quality of the data that they’re fed. So to the extent that ChatGPT is based on the internet, you have to ask yourself: what percentage of the internet is true? And if you don’t know that the data that’s driving the AI is exactly correct and catered to answering the right questions, then you don’t know what the output is going to be,” he says, adding that New Constructs’ system is auditable, unlike some other commercially available AI tools. Users can click on any number in the system and it will show them the page and the filing from which it was derived.

Bloomberg Index Services will be the index provider for the New Constructs Core Earnings Leaders ETF. The US Securities and Exchange Commission has 75 days to review the prospectus and request changes, meaning that the fund could receive approval as early as July.

Cboe Global Markets teams up with Metaurus to build new equity indexes

Derivatives and securities exchange operator Cboe has unveiled a collaboration with asset management company Metaurus Advisors to develop three new US equity indexes. By the end of 2024, the two companies plan to launch the Cboe US Large Cap 100 Index, the Cboe US Large Cap Lead 50 Index, and the Cboe US Large Cap Lag 50 Index.

The Cboe US Large Cap 100 Index is designed to be an equal-dollar-weighted index of 100 of the largest US stocks by market capitalization, rebalanced quarterly in line with the sector capitalization weightings of the largest companies listed on US exchanges. The Cboe Lead 50 and Cboe Lag 50 indexes will help users gauge realized dispersion, a key component of portfolio returns. Both indexes will be equal dollar weighted, and they will measure the total returns of the top 50 and bottom 50 performing companies respectively in the Cboe US Large Cap 100 Index on a quarterly basis.

Cboe also has plans to develop tradable futures products based on the indexes, subject to regulatory review.

LTX integrates with MultiLynq for faster onboarding

LTX, Broadridge’s bond trading platform arm, is integrating with trading connectivity provider MultiLynq. LTX says that the collaboration will help new dealers more quickly get set up on LTX.

MultiLynq will provide an alternative to direct connection, offering dealers a simplified route to integrating LTX into their existing infrastructure, saving time and resources. Through MultiLynq, users can retain their preferred front-end interfaces and ensure that LTX communicates with downstream systems for interoperable workflows.

Lion Global Investors taps NeoXam to streamline investment data and performance reporting

Singapore-based asset manager Lion Global Investors (LGI) has enlisted data management software provider NeoXam to centralize and optimize its investment data and performance reporting across middle- and back-office operations.

In a press release, NeoXam said that the collaboration aims to increase the accuracy and timeliness of client reporting by centralizing LGI’s market and reference data, investment accounting, and performance data. NeoXam’s investment data Software-as-a-Service will act as a single source of truth for LGI’s investment data across all asset classes, which the vendor says will facilitate automation through its data management pipeline and client reporting process.

Xceptor platform available on Azure

Xceptor has made its data automation platform available on the cloud through Microsoft Azure Marketplace. In a press release, the vendor said that deployment on Azure could offer rapid onboarding and a simplified purchasing process. Clients can choose between either pre-packaged or tailored options.

CIBC Mellon chooses Duco for data automation

Investment servicing firm CIBC Mellon has announced a strategic collaboration with data automation company Duco, aimed at lowering operational risk and improving client experience. The firm says that automating repetitive tasks will ensure that its data management processes are exception-based, allowing it to focus on analysis.