The jury may be out on whether artificial intelligence has beaten humans in their own games, but what started as a smart business strategy is today almost everywhere. Even in stock markets.
In Canada, robots have made their trading debut. In what could be the first global equity exchange-traded fund (ETF) run by machines, Horizons ETFs Management Inc.’s AI exchange-traded fund has already hit the market.
In securities trading, an exchange-traded fund is a marketable security that trades on stock exchanges. Its portfolio is managed by some form of trust company, managed by human beings of course. Which is why you are bound to be apprehensive – will you invest in an ETF without a human being at the other end who convinces you with his decision backed by years of market research and real life experience?
“I’m going to be buying some but I’m buying it as a nervous investor myself,” Steve Hawkins, co-chief executive officer of Horizons ETFs Management Canada, said before the Horizons Active AI Global Equity ETF began trading on the Toronto Stock Exchange, “We don’t know what the computer will do.”
The AI-run ETF is listed on the exchange under the ticker MIND. And while it is still being sub-advised by Mirae Asset Global Investments, the AI system’s investment strategy is to analyze data from 50 investment metrics and obtain investment patterns yielding actionable insights.
Experts feel MIND can be a big growth prospect in the ETF space. Just that unlike your portfolio manager guy next door, it will never be able to explain its decision. “We don’t know why it’s going to be making those independent decisions, but from our rigorous testing we believe that it’s going to make the right decisions,” Hawkins said.
To elaborate on the word rigorous, the AI system developed by Korea’s Qraft Technologies was rigorously back-tested over 10 years, during which it learned how the market reacts when the data is interpreted in a certain way, and how to make smart investments in the process.
True, artificial intelligence in stock markets may seem like venturing into uncharted waters, but Hawkins is upbeat the system will come out smarter than the average portfolio manager. “AI can do the work of a team of global strategists, can look at millions of data points very quickly, where a team of strategists would have to work 24/7, 365 days a year,” he says. “It doesn’t bring in investor bias or emotion with respect to any of its decisions, and we hope to see output that will be able to consistently outperform human decision-making.”
Count these two as the most important factors to prefer AI over humans. Artificial intelligence does not have the weakness of human intelligence. It doesn’t take emotional decisions; it doesn’t claim to err is human.
Brace yourself for an AI investment manager in future.