Trends Watch: Machine Learning in Alternative Investments

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.

This week, Elana talks with Bob Elliott, Founder, CEO & Chief Investment Officer, Unlimited Funds.

What is your outlook for leveraging machine learning in alternative investments?

Machine learning is, in essence, systematic investing. Systematic investing approaches have existed for hundreds of years. They have evolved from notebooks, to computers, to now even more sophisticated tools. These tools help investors express their investment understanding and are leveraged by experienced financial professionals to craft investment approaches.

The machine learning of today has exponential computational power that wasn’t feasible five-to-ten years ago. I believe the combination of machine learning and investment experience, done properly, can provide innovative investment opportunities for a wide range of investors.

Where do you see the greatest opportunities and why?

People may not realize that the U.S. economy was restructured post-financial crisis. Banks need more capital, companies that financed themselves with short-term debt have replaced it using long-term debt, and private debt is an expanded capital source.  Today we find ourselves in a higher-rate environment with stubborn inflation. Understanding the evolving economic cycles, reading the economic indicators that matter now combined with insights from machine learning, will allow new ways to create edge and generate alpha.

Regulatory changes now allow new product types, enabling active management strategies in cost-effective structures. The momentum of the new products, especially in the ETF space, creates an opportunity for democratization of sophisticated investment strategies. 

What are the greatest challenges you face and why? 

Investors have a tendency toward return chasing. Providing a durable return stream, that is positioned to perform well through a variety of markets, may not at times appear as attractive as “shiny” strategies that target huge upside but generally only perform in specific market conditions. The ETF sector, in particular, is not incentivized to a long-term, diversified approach. However, prudent asset management is best positioned to build compounding wealth over time. Getting people to understand the long-term value and to believe in the approach in an instant gratification environment is always a challenge.

What keeps you up at night?

From a personal perspective, that’s my newborn. From a business perspective, it’s what keeps most investment managers up; navigating the complexity of markets and finding ways to provide value to our clients throughout. My concern is that people won’t see the value of incorporating a prudent, diversified portfolio approach. It takes discipline, patience, ignoring the noise of the daily market gyrations, and being in the market for the long haul.  This is also compounded by people’s recent experience; a strong bull equity market creates not much impetus for diversified, prudent portfolio management. But we believe in preserving capital through investing with a long-term purview.

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.