Fisher Investments UK on Artificial Intelligence

Fisher investments UK saw Information Technology equities amongst the worst performers in 2022, buzz-word tech trends – such as Artificial Intelligence (AI) – took a back seat in investor’s minds as they focused on tragic geo-political conflicts, higher interest rates and recession fears. However, as markets have begun to recover this year, AI is back in the spotlight. This is partially due to the release of OpenAI’s ChatGPT tool, which many believe to be the most advanced AI system released to date. Also as major technology platforms have continued to invest and integrate their own AI systems into existing products and services. AI is by no means a new technology, but it seems clear it could have increasingly important societal implications as the technology continues to evolve and affect our daily lives.

Whilst professors may fret over the implications of essays produced at the blink of an eye, investors naturally wonder what the investment implications are and whether AI may change the financial services landscape. Could AI give investors an edge that leads to above-average returns? Should investors focus on companies developing AI? In this article, Fisher investments UK will explore the answers to these questions and more.

What is Artificial Intelligence?

Before getting into the investing and financial services implications, Fisher Investments UK believes it’s best to start with the basics. AI generally refers to using software and hardware to perform tasks that normally require human intelligence, such as visual perception, speech recognition, decision-making and language translation. A wide variety of institutions across academia, public companies, private companies and governments have developed AI technologies over decades. For example, technology companies with consumer-oriented businesses such as Amazon, Apple, Alphabet, Meta, Netflix and Microsoft gather and analyse massive volumes of customer data using large-scale AI models to offer users customised experiences in search, news, retail products, advertisement and more.

AI’s Role in Financial Services

AI is not dissimilar to other technological trends the investing world has experienced over time. As with other technological advancements, AI is not necessarily revolutionising the way markets operate, but it may make certain aspects of financial services more efficient. For example, AI programmes can analyse extensive data sets quickly, which can aid in market research, provide quicker trade execution and even perform basic service tasks. However, at Fisher Investments UK we don’t think robot overlords are destined to take over financial services as we know it.

For as advanced as AI programmes have become, they are still limited by the bounds of the code that creates them and mainly rely on widely available public data or pre-programmed information to generate responses. Whilst there are an increasing number of quantitative strategies labelled as “AI Managed”, many of these are built upon the bedrock of existing quantitative strategies that favour specific data points chosen by their programmers. And importantly, as Fisher Investments UK notes, there has yet to be a proven quantitative investment strategy with an established long-term track record of outpacing the market.

Whilst we think investors should be wary of handing over their retirement savings to a computer programme, it’s possible to see increased usage of AI in data analytics and market research. At Fisher Investments UK, we’ve long believed it’s important to consider what quantitative analysis is indicating about the market direction, portfolio positioning, risk assessments, etc. However, we also think it’s unwise to blindly follow the direction of a programme without overlaying the appropriate situational, qualitative analysis. For example, a quantitative programme might quickly compare an individual company’s current profitability with its history – and how it’s shares performed over time – but it can’t consider how potential regulatory changes might affect the industry the company operates in. We think you have to look at the whole picture to make sound investment decisions, not just one component.

Fisher investments UK knows that relying solely on AI also ignores a key aspect of how markets operate: human behaviour. Even if blindly trusting a supercomputer to make investment decisions sounds appealing, sticking to a long-term strategy is one of the hardest things for investors to do. Staying patient and disciplined through periods of heavy market turbulence to avoid knee-jerk reactions is key to long-term investing success. It’s unlikely that even a very sophisticated chat-bot is going to offer sound counsel during periods of short-term market volatility.

 AI: Investing Implications

Companies successfully deploying machine-learning applications could gain a competitive advantage over time, Fisher Investments UK reasons. Large technology firms, for example, can augment their existing products with AI technologies and they are often best positioned to acquire winners in the space. AI could become a powerful tool in driving the business of said companies. Large Information Technology firms also spend billions on research and development of these applications and position themselves to acquire smaller, successful companies to integrate the latest advancements into their business model. These technologies may provide for future stock market upside in certain sectors based on their business applications.

Smaller, “pure play” companies – those focusing only on developing specific AI technologies – are often privately held and may pose more risk than the big players since many of them are not profitable. Much in the same way as any new technology, thousands of start-ups and small companies have (and will) flock to the sphere in an attempt to innovate their way into massive profit. As with many developing companies in the world of a new technology, not all will succeed. Here at Fisher Investments UK, we believe investing in large technology companies that successfully integrate AI technologies may offer a greater likelihood of benefitting from this trend. Whilst the possibility of investing in a single company that sees a massive increase in its stock price due to new AI innovations may be tempting, “chasing heat” by pouring your portfolio into it leaves you with an enormous potential for downside risk.

Future AI Investing Applications

In summary, many investors fret over the current and future possibilities for artificial intelligence to harm their portfolios in regards to equity trading and company profitability. But at Fisher Investments UK, we don’t think the worry is as urgent as some may think. AI platforms are developing quickly to become powerful machine-learning systems, and investors may be able to take advantage of such systems to increase the rate at which they can consume information. Companies have also started increasing their use of AI platforms to enhance current products that may offer profitable investing opportunities. Whilst some companies may succeed in applying AI to increase profitability, as many may fail. The future of AI applications in business are still being fleshed out – basing a portfolio on AI-using companies is probably unwise. As always, a diversified portfolio may help investors take advantage of the AI boom without exposing them to oversized risk. That said, in Fisher investments UK’s opinion, the world of equities has not changed overnight, and one technology coming out of the giant world of tech is not likely to upend the investing universe.