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Is artificial intelligence an investment-bearing theme?

Among asset managers, the topic of artificial intelligence should stay in the era of time for a long time Ingram / GraphicObsession

Collective management

Coming from the digital revolution, artificial intelligence (AI) is booming. Allowing machines and software to think like a human being, this young technology is starting to shake up the businesses of many companies and could open up new development prospects for them.

This is why asset managers are interested in this innovative topic which should stay in the past for quite some time. “This underlying trend is only in its infancy. It’s a silent revolution that affects all sectors ”says Brice Prunas, manager of Oddo BHF's Artificial Intelligence fund.

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For an investor attracted by this theme, it is possible to make a stock market foray into the world of tomorrow. The funds stamped “IA” – Amundi, Oddo BHF, La Financière de l'Echiquier (LFDE), Allianz Global Investors, Candriam … – can still be counted on the fingers of one hand. Co-manager of the Echiquier Artificial Intellligence fund launched in 2018, Rolando Grandi gives his definition of AI: it is based on “Four pillars of big data, the cloud, applications and artificial neural networks”. These are sort of artificial brains making machines more and more intelligent thanks to learning (“Machine learning”, “Deep learning”…).

Oddo BHF’s fund builds a portfolio targeting “producers” of artificial intelligence, the companies that develop these new tools. “It goes from the manufacturers of electronic chips to that of software and algorithms to the company producing the infrastructures like the semiconductors to pass 5G for example”, says Brice Prunas.

North America and Asia

For its part, Candriam integrates into its investment universe only companies that use this technology. “It's still difficult, because it's not easy to assess the contribution of AI to a company's revenue”, points out Johan van Der Biest, Candriam fund manager. Pictet AM has decided to focus its fund solely on the “big data” component.
“Thanks to this disruptive technology developed by young innovative companies, the potential for growth in medium-term results is significant. We are even at the start of this value creation phase ”, says Brice Prunas.

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To make their market, most managers select securities in all business sectors (health, industry, consumption, information technology …) and in all countries of the globe. At Oddo BHF, we indicate that we make a first filter of these global values ​​using artificial intelligence. “This tool helps to detect the companies that meet our criteria but are off the radar managers. Our strategy is to capture value creation regardless of the size of the listed company ”says Brice Prunas.

Some managers opt for small and medium caps of young companies, others bet on larger companies sometimes even on certain funds combine the two. Globally, the geographic areas most represented in these portfolios of thirty to fifty “lines” are mainly North America, followed by far by Asia. “It is normal these are where countries are leaders in the sector where companies”, notes Johan Van Der Biest, fund manager at Candriam.

Some ETFs (“Exchange Traded Funds” or “listed funds”, called “trackers” by specialists) – DWS, Amundi – dedicated to artificial intelligence are starting to flourish on the market. “To cover this thematic of technological breakthrough, we play the diversification of titles and sectors”, explains Olivier Souliac, head of index strategies at Xtrackers (DWS).

The brakes on the expansion of this young sector? Often recent companies therefore still not very profitable or more legal constraints concerning the management and control of data which could increase development costs.

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