Blackrock’s Bradley Betts, one of the founders of the firm’s AI Lab, believes that the time will come when AI-powered data algorithms will be able to outperform human fund managers. Right now, however, algorithms are still fatally flawed and they need human intervention to deliver the best possible results.

Tjibbe Hoekstra files this report for Expert Investor:

The rise of big data and the exponential growth in computer power in the past few years has allowed fund managers to analyse more data than ever. However, the underlying strategies investors use remain more or less the same.

Big data has enhanced the investment process, but it has yet to revolutionize it, admits Bradley Betts, one of the founders of Blackrock’s Artificial Intelligence Lab, founded last year in California’s Palo Alto.

“We collect as much data as possible,” says Betts, adding that the text on his favourite T-shirt says, ‘I never met a bit of data I don’t like’. “It pretty much sums up our attitude.”

But with so much data to process, the challenge facing Blackrock is how to effectively monitor the algorithms’ work. “Algorithms are much better at analyzing data than humans,” Betts says. “But there are things algorithms are not good at, identifying regime changes, for example, such as negative yields.”

And they can’t self-reflect. “Algorithms often find correlations that don’t make sense, but they are unable to identify them,” Betts says. “Humans, on the other hand, are generally good at saying, ‘Stop, I don’t know what’s going on’.”

It may be many years before a robot investing autonomously without human interference is a viable proposition. For the time being, according to Betts, the best results are a fusion of man and machine.