Will AI revolutionize the way you manage your wealth?
More than 60% of French people trust AI to manage their savings. But artificial intelligence is still far from being widely adopted for retail investments.
In just a few months, ChatGPT’s AI has gone from being a fun gimmick to becoming a genuine work tool and a credible alternative to bankers. In fact, according to a survey conducted by the fintech company Hellosafe in late June 2023, based on a representative sample of 1,224 French people, 62.5% of respondents said they were confident in AI-based technologies as investment tools. Among them, a large majority of young people (42.9% of those aged 26–35 say they are confident). Conversely, 35.8% of those over 56 say they are very wary.
For those who are most convinced, AI can help optimize investment performance through access to real-time information, in-depth analysis, and improved risk management. Above all, AI can help reduce harmful emotional biases.
When asked, “What investment products are likely to be managed by AI?”, more than one-third of respondents said that AI is useful for diversifying an investment portfolio or for managing a stock portfolio. Next came cryptocurrencies (21.3% of responses) and bonds (15.6% of responses).
However, the growing integration of artificial intelligence as an investment tool raises questions about the risks that may result. In particular, 42% of respondents said they were concerned about the security of their data.
While many fintech companies already highlight the use of algorithms to determine asset allocation, for example, or bots to automate stock market or cryptocurrency trading, artificial intelligence is still far from being widely adopted for retail investing.
However, AI has long been actively used by companies in the financial markets. Algorithmic trading was pioneered by investor Jim Simons, who decided to use mathematical models to analyze market data and predict stock prices. In 1982, he founded Renaissance Technologies, which operates the algorithm-driven Medallion Fund. Although its performance initially lagged behind the market, it subsequently managed to increase its profits and achieve an average annual return of 35%, after fees. As of the end of March 2023, RenTech managed a portfolio of $121.85 billion.
"While artificial intelligence is well-suited for rapid speculative trading, it is even better suited for rebalancing fund portfolios, identifying promising securities, and performing semantic analysis of news (social media posts, press conferences, etc.). It is therefore not surprising that exchange-traded funds (ETFs) that track stock performance are now driven by algorithms, even if this does not yet guarantee high returns," explains Timur Turlov, founder of the brokerage firm Freedom Finance Europe, citing the example of the AI Powered Equity ETF, the first fund to fully utilize AI to analyze 6,000 securities in real time.
Other funds have been developed using the same model, such as those from the South Korean company Qraft Technologies, which focuses on the momentum factor (the best time to invest) by selecting stocks with the highest returns over a period of 3 to 36 months.
Similarly, the WisdomTree International AI Enhanced Value Fund began developing a quantitative AI model in early 2022 to invest in large- and mid-cap stocks in developed markets, excluding the United States and Canada. According to Freedom Broker, since the start of the year, the fund has gained 10.45%, while its benchmark index, the MSCI EAFE Value Index, has risen 7.49%. The BTD Capital Fund (DIP), based on the classic “buy the dip” strategy, was the first to use AI for asset selection and trade management. The DIP was launched just over a year ago and still trails the S&P 500 in terms of performance.
“Most AI-managed ETFs underperform the market as a whole, partly because of their short track record,” explains an industry expert. The algorithmic ETF segment is still developing, and so far, the assets managed by these funds are negligible compared to the entire U.S. exchange-traded fund market, which is estimated at $6.98 trillion.
