The clever choice
IM PROFILE: The rapid rise of AI
Artificial intelligence is opening a new world of opportunity. Ignore it at your peril
The pace at which artificial intelligence (AI) capabilities are improving means that 2018 could be a very interesting year — perhaps even pivotal.
Already we are confronted daily with the reality that we rely heavily on machines. And what greater evidence is there that we’re entering uncharted territory than Saudi Arabia granting citizenship to a robot?
Hywel George, director of investments at Old Mutual Investment Group, believes we will increasingly be exposed to AI-inspired developments.
"What tends to happen with any of these rapidly moving technologies is that they [affect] one’s life much quicker than one expects," he says.
George says this is largely the result of two factors that are combining to set us on a path of ever-faster development. Moore’s Law — which states that computing power doubles every 18 months — and the power of compounding are driving exponential growth that is difficult for our linear-based reasoning to keep up with.
"When you get that power of compounding on something that’s doubling every 18 months, the impact becomes exponential very quickly. So whether it’s driverless cars, robotics or drones, the impact of AI will become profound very quickly in many aspects of our lives," he says.
The rise of fintech companies and AI-inspired services like robo-advice show how this is affecting the investment world. The promise of robo-advisers is that they can provide a personalised investment strategy based on factors such as your demographic profile, risk appetite and so on.
Another example of how technology is reshaping the landscape is the rise of high-frequency trading that relies on algorithms to trigger buy or sell orders far quicker than human interaction could achieve. This field has grown so rapidly that George estimates that between one-third and half of all trades globally are now conducted using such systems.
However, what interests him most is the value that technology can add to a fund manager at Old Mutual.
The investment group has a quantitative investing team that for more than 15 years has helped it build this capability. This has been possible, George says, because of Old Mutual’s adoption of a "machine partnership" — a partnership that combines his team’s insights with AI’s processing power.
"We are now integrating the latest editions of AI and machine learning into those processes and sharpening our edge accordingly," he says. "We can dedicate resources to this area to help us deliver alpha for our clients."
The same technology is also used by the group’s fundamental investing team to deliver and interpret large amounts of data across economies, financial markets and investment themes, giving the Old Mutual fundamental fund managers an edge on their competitors.
George cautions, however, that he is not yet comfortable with machine-only advice. "It should be a human-machine partnership, which is why I would not trust a machine 100% just yet. You don’t quite know what it’s going to do, and you can use that human interaction to make sense of it: history matters, and the human ability to join the dots in a different way matters, as does the ability to interpret situations that look strange to a machine."
For instance, would you trust an AI programme advising you to buy shares in the company that developed its technology?
This — investing in AI companies this early in the game — is another area that George says presents opportunity for investors. This involves taking a closer look at the companies developing AI technology and solutions, as well as those in related disruptive disciplines.
The phenomenal rise in the value of shares such as those of Google parent Alphabet bears out the wisdom of investing in nascent technologies and the firms developing them.
"As an investor, you definitely want to be on the right side of disruption," says George. "What you don’t want to be is on the wrong side of an industry being disrupted by AI."