Dutch investment manager Robeco claims to have taken the use of artificial intelligence (AI) to a new level for its latest active exchange-traded fund investing in global smaller companies.
The dollar-denominated NextGen Global Small Cap ETF (RGSC LN) employs machine learning to identify opportunities within an under-researched and inefficient asset class that is ripe for active stock pickers to disrupt.
Robeco believes its new ETF is better than existing quant-driven small-cap funds which it says “often rely on linear combinations of well-known factors alone, typically resulting in similar portfolio characteristics across providers”.
Instead, it claims the NextGen fund can uncover patterns other models might miss by detecting “non-linear relationships in return drivers, capturing higher-order interactions between signals across multiple investment horizons and dynamically adapting single weighting at the individual stock level”.
That should enable it to beat the MSCI World Small Cap index at a point when smaller listed companies trade at a 30% discount to large caps.
Nick King, head of ETFs at Robeco, said: “The NextGen Quant team have developed a unique AI-powered process to select stocks from this incredibly broad universe, while maintaining disciplined risk management.”
The fund is overseen by Wilma de Groot, head of core quant equities. It charges 0.5% a year and is listed in London, Milan, Frankfurt and Zurich.
Our view
David Batchelor, senior analyst at QuotedData, said: “A mere marketing gimmick, or a new and innovative way to manage an ETF? My hope is that this will lead to a fully active strategy, rather than another ‘active’ ETF that still hews close to a benchmark. I note that there will still be ultimate human oversight, with portfolio managers ‘accountable for validating whether the assumptions underpinning the model remain intact’. This is presented as a safeguard, although my concern would be that this human input could dampen the edges somewhat. Indeed, a note of caution comes from sister fund Robeco Dynamic Theme Machine ETF, which sprung from the same NextGen programme. Since launch in 2024 the fund’s returns have tracked the index MSCI World Index pretty closely – at least until the past few months, when the fund has noticeably underperformed.”
