This article first appeared in The Edge Financial Daily on March 9, 2018 - March 15, 2018
KUALA LUMPUR: Nomura Asset Management Co Ltd is seeing a ‘significant’ returns improvement by using Artificial Intelligence (AI) for portfolio construction.
“I think we’re quite happy that it (the Nomura Japan Equity AI Impact Strategy fund) outperformed Japan’s Topix (the benchmark), despite February being a very tough month. However, it’s pretty premature for us to talk about performance,” Nomura Asset Management Malaysia (NAMM) managing director and country head Nor Rejina Abdul Rahim said yesterday when asked about the fund that was launched on Feb 2.
Nomura intends to launch the global version of this AI fund in June.
Nor Rejina, who was speaking to reporters at the NAMM 2018 Breakfast Conference, said AI enables portfolio managers to manoeuvre within the markets a lot better, as humans are very emotion driven.
Nomura Asset Management Senior Investment Officer Tsuyoshi Ogawa said AI enhances the decision-making process for portfolio construction, as humans can only recollect short-term information. AI, on the other hand, can extract information from 80 years ago — which is how long Nomura has been collecting data.
“We see very positive developments and we think that in terms of sophistication and complication of the modelling, there will be a lot more improvements. So a lot of the unstructured data that you see right now will in fact be part of the investment management’s processes. Before this, we (the industry) have always been concentrating on just the companies’ financials,” said Nor Rejina.
Ogawa explained that AI takes a very “holistic” approach to investment decision making, as it will take into account not just the company’s financials, but also employees sentiment and market perception. “It’s a very 360 degree type of information that we’re looking at, rather than purely the numbers,” Rejina added.
On concerns about AI taking over jobs, Ogawa highlighted that AI still needs human intervention. He added that AI will only be enhancing the alpha generation platform to help improve its performance, and that the portfolio manager will still be the decision maker for the portfolio construction.
An alpha generation platform is a technology used in algorithmic trading to develop trading strategies that generate consistent alpha, or absolute returns.
With the advent of AI, Nor Rejina said re-skilling talents will be very important. Hence, from the investment management perspective, the company will be looking for graduates with different skills set, such as computer science, data scientists and more, and not just those with investment or finance-related degrees.