Both AI-powered ETFs performed at parity with the S&P 500 in 2022, but the past 18 months paints a different picture.While these examples showcase the ambition and potential of AI-powered funds to deliver superior returns, track records are mixed. Both AI-powered ETFs performed at parity with the S&P 500 in 2022, but the past 18 months paints a different picture. Since the beginning of 2023, AIEQ has trailed the S&P 500 significantly, underperforming the popular benchmark index despite the backing of IBM Watson and quantum computing. While AMOM kept pace with the S&P 500, the promise of combining human intuition oversight and the analytical depth of AI did not result in a breakaway success. Market 'noise' impedes AI One of the challenges for AI in making investments is the contradictory market sentiments from a broad spectrum of commentators, ranging from professional market analysts to individual market watchers on social media. According to the OECD report on Artificial Intelligence, the varied data sources made it difficult for the AI to decipher the authenticity of the information. By consuming all the “noise”, it impedes the AI from making more accurate judgements, as alluded by the concept of “garbage in, garbage out”. Algorithmic hallucinations and the generation of false or misleading outcomes, compounded by AI’s inability to accurately point to the sources of its recommendation, further inhibits the uptake of this technology in asset management. To professional investors, one erroneous prediction can lead to millions in investment losses and reputational risk for asset managers. While the advent of AI enabled asset managers is exciting, it is essential to approach this paradigm shift with caution and prudence. The lessons we have learned from the small initial wave of products, such as the above-mentioned funds and the additional risk exposure from incorporating AI, highlight the long journey ahead to fully capture AI's promise and the importance of robust risk management and human oversight. As informed professionals and asset owners navigate this changing landscape, they must strike a delicate balance between harnessing AI's potential and preserving the integrity of human judgment and oversight. In the dynamic interplay between man and machine, the future of asset management lies in embracing AI as a complementary tool to augment, rather than replace, decades of investment experience accumulated by investment professionals. *Alvin Chia is head of digital assets innovation, APAC, for Northern Trust Asset Servicing.
At times like these, HSBC Asset Management easily pivots towards emerging markets.
The spotlight on growth markets and the need to be nimble and dynamic is ever-sharper, given the difficulty in predicting monetary policy in the world’s major nations.