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The Trinity of Better Investment Decisions: AI, Big Data and Your Investment Manager

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Artificial intelligence (AI) has begun to kick-start significant changes across many industries. From the development of robotics in manufacturing to driverless cars on the road, the potential for its application is limitless. This begs the question: what can it do for investment and fund management?

Ben Dunn - Head of Quantitative Solutions Group at Eastspring Investments – believes that the potential of AI in investment is in allowing much larger volumes as well as different types of data to be used to inform investment decisions and potentially improving on the interpretation of that data in investment decision-making.

Ben Wicks and Mark Ainsworth - of Schroders' Research Innovation and Head of Data Insights, Investment, respectively - concur. In their white paper Harnessing the Data Science Revolution, they write: "The proliferation of information available for investment research is a profoundly disruptive force… the injection of new, and potentially unique, methods of data analysis into existing investment processes should enhance long-term alpha generation."

But can AI and big data deliver on their promise? The underlying goal of a purely AI-driven investment strategy is essentially no different from that of a traditional quantitative investment strategy - "That is, to find strong relationships between elements of data and future asset returns and exploit them," according to Dunn.

However, Dunn adds: "The AI-driven approach to finding these data relationships differs in that they tend to be entirely driven by data (evidence) and do not require upfront rationale or intuition from the analyst."

Dunn believes that this purely data-led outcome is both the greatest strength and the greatest challenge of AI techniques: "Machine Learning models can derive unique insights from the data that may not have been considered by a quantitative analyst working with the same data. But it can also identify relationships in the data that are spurious or temporary." He adds that this is one of the reasons that the "Man + Machine" approach is more commonly pursued by the investment industry to date.

Traditional quantitative versus machine learning strategies

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ource: Eastspring Investments.

Wicks and Ainsworth agree, concluding that an active investment decision is a function of several factors: "A fund manager who has excellent information to hand and who is able to form a coherent but differentiated view, drawing inspiration from a broad range of sources at the appropriate time, is likely to generate good performance."

Hence, it appears investment managers will not be replaced by robots yet. In the new age of AI, investment managers will be able to make use of new and rapidly growing sources of data. Coupled with portfolio construction and risk management skills, this will help active managers add alpha for investors.

Sources: Quantitative Investing Meets Machine Learning by Eastspring Investments and Harnessing the Data Science Revolution by Schroders.

 

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The private banking business operates under Citibank N.A. UAE branch which is licensed with UAE Securities and Commodities Authority (“SCA”) to undertake the financial activity of A) promotion under license number 20200000097 B) Trading broker in international markets under license number 20200000198.

Mutual funds distributed by Citibank N.A. UAE private banking business are registered with SCA.

The approval of SCA, in relation to the promotion of the investment products in the U.A.E. does not constitute a recommendation by SCA. to purchase or invest in the respective investment products and SCA accepts no responsibility and shall not be held liable for the failure of any concerned parties to fulfil their obligations and duties in relation to the investment products or for the accuracy and integrity of the data contained in the relevant subscription prospectus.

CONSUMER, CITIGOLD AND CITIGOLD PRIVATE CLIENT SEGMENT MARKET SPECIFIC DISCLOSURES

Hong Kong: This communication is distributed in Hong Kong by Citibank (Hong Kong) Limited ("CHKL") and/or Citibank, N.A., Hong Kong Branch (“CBNA HK”, Citibank, N.A. is organized under the laws of U.S.A. with limited liability). CHKL and CBNA HK provide no independent research or analysis in the substance or preparation of this communication. Although information in this communication has been obtained from sources believed to be reliable, CHKL and CBNA HK do not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from its use.

This communication is for general information only, is not intended as a recommendation or an offer or solicitation for the purchase or sale of any products or services and should not be relied upon as financial advice. The information herein has not taken account of the objectives, financial situation or needs of any particular investor. Any person considering an investment should consider the suitability of the investment having regard to their objectives, financial situation and needs, and should seek independent advice before making an investment decision. You should obtain and consider the relevant product terms and conditions and risk disclosure statement, and consider if it’s suitable for your objectives, financial situation or needs before making any investment decision. Investors are advised to obtain independent legal, financial and taxation advice prior to investing. Investments are not deposits, are not protected by the Deposit Protection Scheme in Hong Kong and are subject to investment risk including the possible loss of the principal amount invested.

This communication does not constitute the distribution of any information in any jurisdiction in which it is unlawful to distribute such information to any person in such jurisdiction.

CHKL does not provide discretionary portfolio management services.

Singapore: This communication is distributed in Singapore by Citibank Singapore Limited (“CSL”) to selected Citigold/Citigold Private Clients. CSL provides no independent research or analysis of the substance or in preparation of this communication. Please contact your Citigold/Citigold Private Client Relationship Manager in CSL if you have any queries on or any matters arising from or in connection with this communication. Investment products are not insured under the provisions of the Deposit Insurance and Policy Owners’ Protection Schemes Act of Singapore and are not eligible for deposit insurance coverage under the Deposit Insurance Scheme.

This communication is for general information only and should not be relied upon as financial advice. The information herein has no regard to the specific objectives, financial situation and particular needs of any specific person and is not intended to be an exhaustive discussion of the strategies or concepts mentioned herein or tax or legal advice. Any person interested in the strategies or concepts mentioned herein should consult their independent tax, legal, financial or other advisors, as appropriate. This communication does not constitute the distribution of any information or the making of any offer or solicitation by anyone in any jurisdiction in which such distribution or offer is not authorized or to any person to whom it is unlawful to distribute such information or make any offer or solicitation.

Before making any investment, each investor must obtain the investment offering materials, which include a description of the risks, fees and expenses and the performance history, if any, which may be considered in connection with making an investment decision. Interested investors should seek the advice of their financial adviser about the issues discussed herein as appropriate. Should investors choose not to seek such advice, they should carefully consider the risks associated with the investment and make a determination based upon the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives and assess whether the investment product is suitable for themselves. Although information in this document has been obtained from sources believed to be reliable, CSL does not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from its use.

CSL does not provide discretionary portfolio management services.

UAE: Citibank NA UAE is registered with Central Bank of UAE under license numbers BSD/504/83 for Al Wasl Branch Dubai, 13/184/2019 for Mall of the Emirates Branch Dubai, BSD/2819/9 for Sharjah Branch, and BSD/692/83 for Abu Dhabi Branch. Tel.: 04 311 4000. Citibank, N.A. - UAE Branch is licensed by the Central Bank of the UAE as a branch of a foreign bank.

Citibank N.A. UAE is licensed with UAE Securities and Commodities Authority (“SCA”) to undertake the financial activity of A) promotion under license number 20200000097 B) Trading broker in international markets under license number 20200000198.

Investment products are not bank deposits or obligations or guaranteed by Citibank N.A., Citigroup Inc. or any of its affiliates or subsidiaries unless specifically stated. Investment products are not insured by government or governmental agencies. Investment and Treasury products are subject to Investment risk, including possible loss of principal amount invested. Past performance is not indicative of future results: prices can go up or down. Investors investing in investments and/or treasury products denominated in foreign (non-local) currency should be aware of the risk of exchange rate fluctuations that may cause loss of principal when foreign currency is converted to the investors home currency. Investment and Treasury products are not available to U.S. persons. All applications for investments and treasury products are subject to Terms and Conditions of the individual investment and treasury products. Customer understands that it is his/her responsibility to seek legal and/or tax advice regarding the legal and tax consequences of his/her investment transactions. If customer changes residence, citizenship, nationality, or place of work, it is his/her responsibility to understand how his/her investment transactions are affected by such change and comply with all applicable laws and regulations as and when such becomes applicable. Customer understands that Citibank does not provide legal and/or tax advice and are not responsible for advising him/her on the laws pertaining to his/her transaction. Citibank UAE does not provide continuous monitoring of existing customer holdings.

Product Key Fact Statements and all other fees and charges are mentioned in the Schedule of Fees and Charges can be found on our website - www.citibank.ae.

Citibank UAE is a distributor of mutual funds which are managed by asset management companies who are our third-party product providers. We use UBS AG as an intermediary for execution and custody services to offer equities, and bonds to our customers.

Mutual funds distributed by Citibank N.A. UAE Consumer Business are registered with SCA and structured notes distributed by Citibank N.A. UAE Consumer Business are approved by the Central Bank of UAE.

The approval of SCA, in relation to the promotion of the investment products in the U.A.E. does not constitute a recommendation by SCA. to purchase or invest in the respective investment products and SCA accepts no responsibility and shall not be held liable for the failure of any concerned parties to fulfil their obligations and duties in relation to the investment products or for the accuracy and integrity of the data contained in the relevant subscription prospectus.

The information provided herein does not constitute the marketing of any products or services to individuals resident in the European Union, European Economic Area, Switzerland, Guernsey, Jersey, Monaco, San Marino, Vatican, The Isle of Man, the UK, Data Privacy (GDPR, LGPD & NZPA)*

United Kingdom: This document is distributed in the U.K. by Citibank UK Limited and in Jersey by Citibank N.A., Jersey Branch.

Citibank UK Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Our firm’s Financial Services Register number is 805574. Citibank UK Limited is a company limited by shares registered in England and Wales with registered address at Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, Companies House Registration No. 11283101.

Citibank N.A., Jersey Branch is regulated by the Jersey Financial Services Commission. Citi International Personal Bank is registered in Jersey as a business name of Citibank N.A. The address of Citibank N.A., Jersey Branch is P.O. Box 104, 38 Esplanade, St Helier, Jersey JE4 8QB. Citibank N.A. is incorporated with limited liability in the USA. Head office: 399 Park Avenue, New York, NY 10043, USA.

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