Artificial Intelligence is About to Hit Your Portfolio

“Ask almost any money manager what they’re most interested in these days and it’s not proselytizing new investing styles—it’s artificial intelligence,” says a recent Barron’s article. “Artificial intelligence is the ultimate competitive edge.”

The article quotes Andrew Lo, MIT’s director of the Laboratory for Financial Engineering, who says, “We are in a technological arms race. Financial institutions have to participate just to keep up with the competition” for cost savings, among other things.

Delving into both the processes behind AI and its limitations, the article explains machine learning and provides an overview of the sectors most heavily influenced by AI. “Some of the most interesting developments in AI,” it adds, “are in portfolio management,” adding that “the $3 trillion exchange-traded fund industry couldn’t have happened without modern computing, and the newest ETFs are likely to make even greater use of AI.”

According to the article, the next frontier will be that of machines evaluating and predicting human behavior, “such as how portfolio managers trade around management meetings and earnings.” Some financial firms, it says, are even betting that AI can “accurately ascertain behavioral traits and predict individual reactions to financial and market events.”

The article concludes by highlighting that “perhaps the greatest obstacle for AI isn’t technology but perception,” citing the challenges associated with privacy issues.