Artificial intelligence and machine learning can play key roles during times of market turbulence, according to Stefan Tittel, the chief executive of Rise Wealth Technologies – a Munich-based AI Investment firm.
Despite current market conditions, Rise Wealth Technologies posted its best ever monthly performance in March for its flagship strategy – with AI and machine learning playing a key role in providing “robust returns ahead of expectations”.
Tittel said: “AI and machine learning are important components of this by helping in the research and development of the diversified strategies we deploy and ensuring that our trading strategies can operate with faster changing and wider parameters than with purely human involvement.”
The firm’s VSOP strategy was up 23.21% in March, and 18.3% for the year “at a time where larger quant funds are struggling to adapt to chaotic markets disrupted by coronavirus”.
But some industry experts, however, believe that algorithmic strategies have been distorting share prices – hence the reason it took so long for the impact of the coronavirus on global markets to be priced in, even after it started hitting headlines worldwide.
Tom Becket, chief investment officer at London-based Psigma Investment Management, said: “If you’d have predicted what was going to happen with regards to this ongoing virus situation, and the response to it within business, and the likely impact on the Chinese and global economies, you would’ve been surprised to then wake up two weeks later and find that global stock markets were mostly – with the exception of things really linked to China – higher than they were beforehand.”
After the initial ripple effects following the outbreak, weeks passed with markets showing no signs of caring. The fund manager believes influences were at work distorting market reality. Market behaviour is now being driven by algorithms.
“I don’t know whether it’s artificial intelligence or strategies built around algorithmic processes, but computer-based trading strategies are having a growing and historically different influence on markets,” Becket.
“Looking at some of the market moves in recent months, you could have expected the opposite to happen based on what’s been going on in the economy and the macro-environment, and personally, I think there are other influences at work,” he said.
“Now, so much of the money invested in markets – up to 90% through high-frequency trading, CTA [commodity trading adviser] modelling funds, and trend-following funds, many of which are quantitative-driven strategies as well – is chasing the same themes and same factors in markets, the same momentum, growth opportunities, dividend yield strategies over low bond yields. It’s driving all the money into the same space,” he added.
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