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How active managers are using AI in their investment processes

21 November 2023

Asset managers are finding new ways to improve the efficiency and quality of their stock picking.

By Tom Aylott,

Reporter, Trustnet

As the transformative power of artificial intelligence (AI) becomes apparent, experts are constantly finding new ways the technology can strengthen the way asset managers invest.

A recent study by Avaloq revealed a growing appetite for AI use within financial planning, with more than two-thirds (69%) of UK investors saying they are comfortable with its use in investment decision making, with 15% happy to remove the human element altogether.

But rather than making an adviser’s role redundant, Bestinvest managing director Jason Hollands said AI will do a lot of their longwinded and timely tasks, making them more efficient in the process.

This was a key benefit also identified by Ed Wicks, global head of trading at Legal and General, who said AI can also be used in the fund management world.

His firm has been developing technology that can manage low-touch trades independently, leaving analysts with more time to focus on trades that require greater attention.

In its most recent trials, the model was able to successfully predict the execution channel of trades with 93% accuracy and although it is still in its early stages, it could revolutionise the role of traders.

Wicks said: “The aim of our research is to deliver a machine-learning module that can correctly classify the execution channel of each order, thereby allowing a greater proportion of traders’ time to focus on executing high-touch trades.

“The days of time-intensive involvement in the sorting and execution of trades could soon be banished to history.”

The further integration of AI could not only improve efficiency, but strengthen the quality of asset manager’s work, according to Global X ETFs research analyst Tejas Dessai.

This technology can process vast sums of information “with heightened accuracy” and could flag financial risks a human may overlook.

Dessai said: “Generative AI can be leveraged to generate synthetic data to enhance the training of risk models and model unforeseen market events, leading to the discovery of new risk patterns not apparent in historical data.

“Similarly, these tools are capable of simulating potential market scenarios or financial reports, aiding in the prediction and identification of potential risks and fraud detection.”

This was also highlighted by the Schroders Capital Data Science team, who said that AI could draw a more comprehensive picture than humans by sifting through the vast number of documents and data released by companies.

“Traditionally, we might have relied on sector classification and geography of operation to identify peers for an investment,” they explained.

“Now we are using the contents of companies’ websites in conjunction with AI models to build a much more nuanced similarity mapping, which has vastly improved our ability to find relevant companies right in record time.”

As this nascent technology continues to evolve, the team at Schroders are constantly finding new ways that AI could bolster their existing processes. Revolutionary new applications could arise from AI as it develops, creating new opportunities for asset managers that don’t yet seem possible.

“New opportunities for the use of AI will continue to emerge as the technology is rapidly developing, resulting in new capabilities that haven’t even been considered yet,” they added.

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