Over the last five years, hedge funds using AI and machine learning have turned in better returns that the average fund according to the Eurekahedge Index tracker. Billions of data points being processed in very large data sets seem to confer an edge and this is why interest in AI and machine learning is boiling over.
Here is an excerpt from an article published in Pensions & Investments:
It won’t take long for funds managed entirely by robots to be everywhere. Two to three new ones will start trading each month this year, reckons Alex Allen, who runs a fund for EFG Asset Management that invests in machine-learning strategies.
“It’s the next evolution in the investing arms race,” said London-based Allen, who already invests in eight machine-learning funds, and plans to add two more soon.
Machine-learning takes quant investing to the next level because the robots are programmed to adapt and improve their performance based on the data they sample over time, without needing explicit human instructions.
That tech-savvy, data-driven quants are dabbling in the field is hardly new — it’s been touted as the next big thing for years, and the tools have been getting cheaper and easier to use all the while. What sets the latest flurry of activity apart is the backdrop. Whipsawing markets and the over-crowding of many quant strategies have battered their performance and started to undermine investor enthusiasm for this once red-hot corner of the investing world.
Proponents say machine-learning has the potential to give quants the winning edge they’re missing, in part because it opens up the prospect of uncovering new signals in large masses of complex data to boost returns.
