Japan 

Aberdeen launches AI smart beta venture

Aberdeen launches AI smart beta venture

We have seen a collaboration between Aberdeen Standard Investments’ quantitative investment strategies (QIS) team and Mitsubishi UFJ Trust Investment Technology Institute (MTEC)/Mitsubishi UFJ Trust and Banking Corporation. The Aberdeen Global (AG) Artificial Intelligence Global Equity fund combines two of the most popular investment themes of the moment – smart beta and artificial intelligence (AI).

Smart beta funds use factor premia – in this case those sources of risk such as value, quality, momentum, small size and lower volatility – based on well-known academic research, in an attempt to deliver excess risk-adjusted returns.

The differentiating feature of this fund is that it uses machine-learning techniques, as well as a variety of quantitative techniques, to time and weight its investments. But exactly how it does this is unclear from the information currently available, and a meeting with the team is in order to get to the bottom of the process. Given it is a machine-learning approach, I suspect the AI will be constantly updating itself as it acquires new data but more guidance on the mechanism would be useful.

Aberdeen Standard Investments believes the ability to use machines to read and understand vast amounts of data – in order to forecast market moves more accurately – has spawned innovation and a resurgence in active quantitative investment approaches.

Its QIS team has worked with MTEC over the past two years to develop a number of innovative AI models, which they believe can identify and capitalise on patterns in global equity markets to dynamically time factor premia and generate alpha.

It is a new approach, but whether it will work successfully in practice is debatable. The jury is still out on whether machine-learning approaches – which have proved so successful in games such as chess and Go – can actually be applied to investing.

The AI will presumably also have to take into account other, less scientific factors such as investor sentiment and presidential tweets to correctly anticipate short-term market moves.

I am not familiar with MTEC, but Japan is a centre of excellence in terms of robotics and AI. I am more familiar with the Aberdeen Standard Investments’ side of the collaboration, but its track record has been mixed and some of the funds it has run have appeared in our RedZone list of underperformers in the past.

With this in mind, I say this is a fund that merits further analysis and one to watch for a while, rather than committing too early.

Darius McDermott is managing director of Chelsea Financial Services