[GRTV] AI and investment, is active management delivering?

Shane Solly, portfolio manager Harbour Asset Management, gives his view on what artificial intelligence (AI) means for investors.

Saturday, June 10th 2023, 6:00AM

by Andrea Malcolm

He says the underlying tech, large language models (LLMs) and machine learning systems process vast amounts of data in a very short time so in theory, which may help businesses and investors with decision making.

The most recognised is Chat GPT (the GPT stands for generative, predictive, transformer) which takes bits of information and extrapolates them forward.

“The cool thing about Chat GPT,” Solly tells GRTV, “was that it got to one million users in five days as compared to say Instagram which took 75 days and Spotify which was 150. It has massive momentum. These are really fast moving technologies.”

He says for some companies, AI will provide a better understanding of where demand is coming from, where and how trends are changing, allowing them to flex their business to suit.

Harbour is now using AI so will it change how portfolio managers do research into companies and stocks?

“It improves the information flow, the algorithms enable a lot more information to be processed and speeds up the process massively. What it doesn’t do is answer the question, ‘What are the questions?’

“I need time to understand what it is that I'm fishing for to make it work. The need for human expertise as an investor and an investor adviser doesn’t go away. What are the questions I really need to ask, what am I fishing for?”

When it comes to investing in AI, Solly says it's a growth segment with a lot of capital chasing it.

“You have to invest in a fund that has a range of different growth aspects, this is just one of them. It’s hot right now, there’s further to go but we want to keep a range of things in the mix.”

Is there a risk that if all the portfolio managers are using the same AI, they will all start to make the same decisions?

“If we’ve all got it, the competitive advantage [of AI] goes away. So the advantage comes back to what it has always been in investing, which is what are you searching for and what are you asking?”

So is active management delivering the goods? Solly says the world has gone through a period of time of global synchronisation, in which everything has been working in the same direction.

“Now there's a bit of de-synchronisation; different economies going in different directions so we’re seeing a bigger spread in returns between underlying securities. Stocks are going in different directions. The art in active management is avoiding businesses that don’t do well, so in this environment that’s one of the key areas.

“The last six months? It’s very early days, but we’ve started to see active managers outperform. We’ve seen some valuation extremes, we talked about AI earlier on. You’ve got to look through to have a long term view on that. That is where active management can provide a helpful boost.”