AI Funds Are Missing Out on the AI Stock Boom
ChatGPT, make predictions by exploiting AI’s aptitude for finding patterns in mountains of data. A portfolio manager chooses a trading strategy. The AI is then trained on a vast quantity of historical information and directed to trade within that strategy by using the tactics that would have worked best in the past.
Poor performance might be why parallel waves of enthusiasm for both AI-themed stocks and actively managed ETFs haven’t won investors over to the AI-powered club. The 13 members identified in a Wall Street Journal analysis have about $670 million under management—a minuscule sliver of the $7 trillion ETF market—and have seen outflows this year and last of more than $300 million. AI-powered funds promise to skirt the costs of human behavior and to bring hedge-fund-like technology to the masses.
And AI can, in some cases, time stock trades better than individual investors, according to research by Eric Ghysels, a professor of economics and finance at the University of North Carolina, Chapel Hill. But AI doesn’t adapt quickly enough to paradigm-shifting events such as 9/11 or Russia’s invasion of Ukraine to outperform professional portfolio managers reliably over time, said Ghysels. “Maybe one day it will, but for now AI is limited to plagiarizing history," said Ghysels.
The human brains behind the bot-powered funds tend to blame their underperformance on the strategies with which they have saddled their AIs. AIVL is seeking value opportunities in a challenging environment for value stocks, said Voya’s Bargeron. Fans say performance will improve over time because the AIs are continuously retrained with incoming data, though the evidence on that score isn’t entirely consistent with that idea.
Read more on livemint.com
