Is AI Destined to Replace Fund Managers?

November 30, 2017

In this episode of TechTalk, we talk about the debut of the world’s first ETF powered by artificial intelligence (AI). We discuss the technology behind it, if it impacts a fund’s expense ratio and, most importantly, how it’s performing.

Transcript

Dave Plaskow: Hello and welcome to EisnerAmper’s technology podcast series. With more than 500 technology clients, we’re always interested in the latest industry trends and developments, as well as any related business and accounting opportunities and challenges. Today’s topic is robot managed mutual funds. I’m your host Dave Plaskow and with us today is Dave Katz, senior manager in EisnerAmper’s technology and life sciences practice. It’s another episode of The Dave & Dave Show. Dave, welcome and thanks for being here.

Dave Katz: Always good to be here Dave.

DP: I like this topic – it seems really interesting to me. But are we now moving one step closer to robots taking over the world?
DK: It sure does seem that way sometimes. In this case, San Francisco-based EquBot LLC debuted the world’s first ETF powered by artificial intelligence. It’s the AI Powered Equity ETF. It’s on the New York Stock Exchange under ticker AIEQ.
DP: Great. And what’s the technology behind this?
DK:Using the data processing power of IBM’s Watson, the fund ranks investment opportunities by analyzing more than one million pieces of information daily such as economic data, consumer trends, social media posts, and world and company-specific news, and it identifies those equities with the greatest potential for appreciation. The technology builds predictive models on some 6,000 companies and then derives a portfolio of approximately 70 U.S. equities.
DP: Okay. But this isn’t an entirely new concept, is it?
DK:No, computer algorithms have been examining trading patterns in stocks for quite a while now.
DP:What’s different here?
DK:The AI uses machine learning so it can actually learn without the assistance of people.
DP: Wow. Now, with all the automation behind this, is this going to lower the price of funds?
DK:Somewhat. The AI-powered equity ETF has an annual expense ratio of about 0.75%. That’s a little higher than the average passive ETF, but for actively traded funds, such as this, it’s a little cheaper.
DP: Now the real question, how’s the fund doing?DK:Yes, that’s what everyone wants to know. In its first week of trading, the fund was up 1%. During that same time period, the S&P 500 index was up 0.5%, so score this one for the robots. But the fund only has about $7 million in assets. Should it be successful, we’ll obviously see that number grow.
DP: We’re seeing in a lot of media reports that artificial intelligence may put quite a few people across a variety of sectors out of work. Is this now one step closer to putting flesh-and-blood fund managers out of business?
DK:Certainly the decrease in actively managed funds and increase in index and target date funds have been a challenge for the fund manager workforce. And while AI will replace certain positions, I think there will always be a need for highly skilled professionals to provide personal services to clients – the key word being “personal.”
DP: So we’ll have to keep our eyes open and see if this starts going more mainstream, moving into the Fidelity and Vanguards of the world.
DK:Absolutely.
DP: Well, Dave, thanks for your expertise and great insight.
DK:Thank you.
DP: And thank you for listening to The Dave & Dave Show, as part of the EisnerAmper podcast series. Visit EisnerAmper.com for more information on this, and a host of other topics. And join us for our next EisnerAmper podcast, when we get down to business.

About John Pennett

john Pennett is the Partner-in-Charge of the National Technology and Life Sciences Group, and is a member of the Special Purpose Acquisition Company (SPAC) services team. H

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