PLSA: What Artificial Intelligence Means For Alternative Investors

PLSA: What Artificial Intelligence Means For Alternative Investors

The theme of “Artificial Intelligence and the Future of Mankind” was explored at last week’s PLSA Annual Conference in Manchester, with renowned AI expert and Oxford academic, Nick Bostrom, who suggested that AI represented the third major revolution in human history after the agricultural revolution and the industrial revolution. His central question: could we make similar leaps forward in performance with the brain and technology?

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At eVestment, we see a nascent, but growing universe of strategies leveraging AI, scientific approaches and machine learning. We created a custom universe of 29 strategies using keyword search tools and it’s easy to see why some in the industry are predicting big things for this approach to investing. Several have delivered strong returns, whilst others have provided diversification opportunities:

Fig. 1 – Top Viewed AI/Scientific Strategies in eVestment

This Credit And Equity Fund Saw Sizable Contributions From Its Stocks In Q3

Arena Investors Chilton Capital Management Schonfeld Strategic Advisors Robert Atchinson Phillip Gross favorite hedge fundsThe DG Value Funds were up 2.7% for the third quarter, with individual fund classes ranging from 2.54% to 2.84%. The HFRI Distressed/ Restructuring Index was up 0.21%, while the HFRI Event-Driven Index declined 0.21%. The Credit Suisse High-Yield Index returned 0.91%, and the Russell 2000 fell 4.36%, while the S&P 500 returned 0.58% for Read More

Source: eVestment. *Product views January 2016 – June 2017; **Annual rolling returns to end June 2017

Bostrom also suggested AI would make markets more efficient and that there could be major winners and losers. He cited NVIDIA, the chip maker, as an example of a company that could benefit. According to eVestment data, NVIDIA stock has grown in popularity amongst US Large Cap Growth Equity Managers in recent years. We analysed a universe of 222 firms with 348 strategies and 1,351 different stocks invested across the strategies. As of Q2 2017, 33% of portfolios within US Large Cap Growth managers have exposure to the stock. The level of popularity of that stock has increased.

Fig. 2 – Percentage of US Large Cap Growth Equity universe holding NVIDIA stock

PLSA Artificial Intelligence

Source: eVestment.

The average weight of NVIDIA within portfolios in the US Large Cap Growth universe has also increased to 0.57% as of Q2 2017, meaning the level of conviction on NVIDIA for fund managers is increasing.

Fig. 3 – Average weight of NVIDIA position held by US Large Cap Growth Equity universe

PLSA Artificial Intelligence

Source: eVestment.

Whilst AI investing is a relatively new phenomenon, it is clear this trend will have a big impact on institutional portfolios in the future. Both as a means to identify opportunities for alpha, and as a driver of performance for certain companies and sectors, we believe AI investing will bring new opportunities to profit for institutions and asset managers alike.

Article by Stephen White, eVestment

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