Last days of the stock picker as money managers embrace artificial intelligence

Financial technology is disrupting traditional approaches to investing, and BlackRock Inc.'s recent announcement that it is replacing human stock pickers with machine-run algorithms for some of its equity funds, signals that the money management industry is getting the message. The decision by BlackRock, which has more than US$5 trillion in assets under management, follows a similar move by the world's largest hedge fund, Bridgewater Associates (US$160 billion in AUM), to start using software to automate its day-to-day decision making. The popularity of computerized quantitative trading strategies, and the growing use of artificial intelligence (AI) techniques, stems in large part from their impressive returns. AI and machine learning hedge funds outperformed both traditional quantitative and the average global hedge fund, with annualized gains of 10.6 per cent over a two year period, according to Eurekahege. These new machine-based funds also posted better risk-adjusted returns, with considerably lower volatility. "The application of AI in the investment management industry is still in the early stages, however we believe that increasing consistency and profitability will likely drive continued investor interest," said Stephanie Price, an information technology analyst at CIBC World Markets.