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ETF universe filters and selections
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STRATxAI

February 2024 · 5 min read

Understanding the ETF Universe

Beginner

Introduction

An exchange-traded fund (ETF) is a type of investment fund traded on stock exchanges. STRATxAI's Xplore ETF tool offers users a way to research, create and test a strategy that is tailored to their investing objectives.

The investment 'universe' is the term used to define the set of assets to research and trade. In this post, we'll dig into the ETF investment universe that is available to users in our new Xplore ETF tool.

There are thousands of publicly listed ETFs in the USA. We selected a subset of these across a broad range of asset classes and ETF providers so that our users can build their own data-driven investing strategies. Users can select ETFs from the following asset classes - Market Indices (S+P 500, Dow Jones, Nasdaq, Russell etc ...), Bonds, Inflation, Commodities. There are also ETFs from commonly known style factors such as Value, Momentum, Quality, Low Volatility and Dividend Yield which are all Equity-related.

Each of these asset classes have different risk-return characteristics (for example bonds will typically be lower risk than equities but also offer lower returns than equities). Allowing users to access our full universe, enables users to research and create a personalised and unique strategy that suits their investment goals.

The STRATxAI Universe

Let's take a look at how we construct our top-level universe of ETFs at STRATxAI. In our research process, we applied the following logic in order to get a more manageable universe of ETFs for our users to choose from:

  • Starting with our entire database of ETFs, we found that there are over 4,000 ETFs traded in the USA.
  • We then grouped these ETFs by their asset class and examined the following properties of each:
    • Market capitalisation
    • Volatility
    • Performance
    • Years since ETF began trading
    • Liquidity
    • ETF Provider
  • We selected a maximum of 10 ETFs in each asset class that had the best results based on the above metrics. Let's take a look at the exact breakdown.
count of ETFs by asset class

STRATxAI provides over 60 ETFs across 5 main asset classes, which are Equity indices, bonds, commodities, inflation, and style factor ETFs. Users can select or deselect a subset of these based on their own preferences.


Selecting your Own Universe

Let's assume we want to create a strategy to trade in and out of various market indices. We can simply open the ETF universe selector, deselect all, and then select the market indices asset class, as shown in the image below.

selecting your own universe
Summary

Think about how you choose your investment universe and use the above data to guide your decision. A more reserved investor might choose a balance between bonds and stocks whereas a more aggressive investor might only include equity-based ETFs.

Start exploring and testing your investment ideas in our safe, enjoyable environment. Have fun constructing your own personalized investment strategies using our tool and please let us know any feedback.

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