After training their AI-powered machine learning algorithm for a year, fund managers from China’s Zheshang Fund Management are ready to unleash their creation on the “wildest major stock market in the world.”
Here is an excerpt from article published by Bloomberg:
Zheshang Fund Management Co., which manages $6.5 billion, plans to use about 300 investment models to analyze more than 3,000 Chinese stocks for what it says is the nation’s first artificial intelligence-based fund run purely on recommendations from its machines.
The “robots” initially learned from the nation’s best fund managers and analysts, and after about a year in training are ready to take them on when the fund opens to retail investors next month, according to Zha Xiaolei, head of Zheshang’s four-person AI investment team.
While a growing number of hedge funds globally including Bridgewater Associates and Man Group Plc have developed AI and machine learning strategies to gain an edge, the results so far have been mixed. Funds that incorporate AI into their decisions have lagged a broader hedge fund index since 2018, according to Eurekahedge. Making headway in a market famous for its unpredictable price swings, where mom-and-pop investors drive 80% of trades, won’t be easy.
To build a model that can adapt to China, Zheshang’s machines first analyzed the strategies of more than 80 of the nation’s best-performing fund managers, drawing from public disclosures of their holdings. They were also fed stock recommendations from 500 star analysts and industry experts, and investment ideas from 200 chat groups. Zha said they took volatility into account from the beginning by targeting Sharpe Ratio, a measure of risk-adjusted performance, as the key indicator for the robots. Diversifying the portfolio also helps contain the volatility, he said.
The machines now analyze 3,000 different data feeds to generate trading signals, and consistent underperformers are eliminated. “Every robot was assigned one specific goal and they need to reach perfection in doing it,” said Zha. The fund returned 26.4% between Sept. 28 and June 28, according to Zha, a period during which Chinese stocks swung from a bear market into a bull run. The benchmark CSI 300 Index added about 12%.