The ETF from Euclidean is an actively managed fund for US value stocks of market caps $1 billion or more.

Seattle-based investment advisor Euclidean Technologies Management has launched its first exchange-traded fund (ETF), the Euclidean Fundamental Value ETF (ECML US). The actively managed US equity fund utilizes artificial intelligence (AI) to identify value stocks. The ETF, listed on NYSE Arca, has an expense ratio of 0.95% and currently manages approximately $130 million in assets.

The fund’s investment strategy begins with a universe of US-listed stocks with market capitalizations exceeding $1 billion, excluding non-US companies and those classified in the financial sector. Euclidean employs machine learning to generate earnings forecasts for each company, considering various data such as financial statements, historical stock prices, industry classification, and market size. The model also incorporates uncertainty to discount earnings and calculate a discounted earnings forecast. (ETF Strategy)

Companies are ranked based on their inexpensive nature relative to the discounted earnings forecast, using the “earning yield” metric derived from the model’s calculations. The AI model further screens out potential “value traps,” which are companies that may appear cheap but are likely to perform poorly in the future. The eligible universe is then re-ranked, adjusting for companies with a higher probability of being value traps.

Euclidean’s ETF typically consists of 60 to 70 stocks with favorable rankings, ensuring each constituent is carefully vetted to avoid erroneous or negative information. The portfolio is rebalanced quarterly, and constituents are typically equally weighted.

By combining AI and fundamental analysis, Euclidean aims to provide investors with an actively managed ETF that identifies value stocks based on robust data analysis and predictive modeling techniques.

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