Eagle Daily Investor

This Fund Uses Data Science Techniques

The iShares Evolved U.S. Media and Entertainment ETF (IEME) is an exchange-traded fund that uses data science techniques and a proprietary classification system to identify and select companies engaged in the media and entertainment sectors.

IEME’s selection process draws heavily on a methodology first pioneered by BlackRock and involves machine learning models that choose and weight sector stocks. The fund then searches annual report documents, looks for certain key words and then categorizes the company into one of many sectors. While a single stock can end up in more than one sector, the program compensates for this by reducing its weight in the portfolio. This approach also reduces the risk of suffering a financial setback if the value of a stock plummets unexpectedly.

It also is worth noting that this fund’s goal is not to attempt to “cherry-pick” winners through some sort of obscure methodological process. Rather, its goal is to simply expose investors to the wealth of entertainment firms that are out there to better equip them with the knowledge that is required to make good investments.

Most of IEME’s funds, 71.21%, are in entertainment companies such as Walt Disney (NYSE: DIS), Twenty-First Century Fox (NASDAQ: FOX), Comcast (NASDAQ: CMCSA), CBS (NYSE: CBS), Viacom Class B (NASDAQ: VIAB), Netflix (NASDAQ: NFLX) and Activision Blizzard Inc. (NASDAQ: ATVI).

This ETF also has funds invested in leisure products, hotels and entertainment, software and IT and telecommunications as well.

Chart courtesy of stockcharts.com

Here, it is worth issuing a word of caution as more than a few of these stocks (Netflix among them) were strongly affected during the recent stock market plunge and lost a sizable amount of their value. Given the still relatively volatile environment that is the technology sector, it remains to be seen if the recent plunge was the beginning or the end of a larger trading pattern.

The fund currently has $4,939,750 net assets, has an average daily trading volume of 3,335 shares and has an average spread of 0.31%. IEME also has an expense ratio of 0.18%, meaning that it is relatively cheap to hold in comparison to other exchange-traded funds.

In short, while IEME does have several advantages over some of its peer funds, its risks are far from zero. Interested investors always should do their due diligence and decide whether the fund is suitable for their portfolios.

I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.


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