Artificial Intelligence as an Investment Frontier

Artificial intelligence is moving forward at a rapid pace. Here is a compilation of the best three actively managed AI funds in Europe.
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Artificial Intelligence (AI) is already becoming a part of our everyday lives. Upcoming innovations will not only integrate the technology more seamlessly but usher in new products and services that will enhance our lives. More companies every day are exploring how they can use AI to improve their products and experiences, enhance efficiency, and drive competitive advantages. Future innovations will be exciting and world-changing just like the tethered investment opportunities.

Each decade brings core technological advancement. These changes, that often work at the deepest and most essential levels of society have drastic implications on markets. In the late 1990’s it was the implementation of the internet. In 2007 Steve Jobs changed the world with the introduction of the iPhone. And today, it seems as if our next jump comes from the AI sphere. And this jump has a good chance of being more impactful and by virtue, more profitable for astute investors.

Investors, both retail and commercial need not tackle this new frontier on their own. There are many top-notch funds revolving around these changes from some of the most respected names in money management.

We started to analyze these funds and reached out to our partners at Allianz Global Investors, La Financière de L’Echiquier, and Polar Capital.

Fund NameAUMFund Performance
Echiquier Artificial Intelligence B143 Million EuroAnnualized returns of 6.7% since inception in 2018
Allianz Global Artificial Intelligence Fund1.5 Billion Euro5.7% Annualized
Automation and Artificial Intelligence Fund340 Million Euro 7.6% Since inception after fees (January 2018)

Key Questions:

  • What are the key differentiators of the Artificial Intelligence fund versus tech funds or Robotics funds?
  • How well has your fund faired relatively to other fund benchmarks?
  • Where is the AI sphere going from here?
  • As well as any other tidbits they found interesting enough to share with our readers.

Following is a showcase of what we believe to be the top actively managed funds within Artificial Intelligence as well as unique perspective from the Fund managers.

Accueil - LFDE - La Financière de l'Echiquier
  • Investment Philosophy: Our conviction management focuses on high-growth companies. Faithful to LFDE’s stock-picking DNA based on depth knowledge of companies, I travel the world to meet entrepreneurs in China, Japan or Silicon Valley and select the most appealing companies based on our 4 profiles, their growth capabilities and, of course, a compelling valuation over our investment horizon. AI is a technology without borders, as evidenced by our investments in Asia Pacific and Latin America, which have increased in recent months.
  • Interesting FAQ: PING AN HEALTHCARE, a Chinese company that has seen its Good Doctor telemedicine application grow ten-fold since the onset of the coronavirus epidemic; the stock appreciated sharply, reflecting the market’s anticipation of its success.

Investment philosophy: The Fund invests across a broad spectrum of technologies and sectors embracing the disruptive power of Artificial Intelligence.

They implement a bottom-up, fundamental strategy investing in Artificial Intelligence investment processes

  • Fund overview: AI has the potential to have a disruptive effect in all economic sectors – not only in the technology segment – for decades to come. The aim of the Allianz Global Artificial Intelligence Fund is to capitalize on these disruptive changes introduced by the transformative technology behind Artificial Intelligence (AI) and to invest in companies that are best placed to create above-average value for investors.

We believe that those companies that drive the development of AI or use it to transform their business model have the greatest opportunities to expand their market share and generate high returns for investors over the long term.

Allianz Global Artificial Intelligence was the first fund in Europe to offer investors access to all areas of the AI segment, allowing investors to participate flexibly in the various developments in the area of AI. Thanks to the comprehensive research and expertise of the fund management team, new trends find their way into the portfolio at an early stage. The strategy is intended to invest in innovative companies that develop or use AI technology across industries and worldwide, like for example semiconductors or robotics. The fund is not based on a typical technology index with a high proportion of very large technology stocks but invests in companies of all sizes.

The fund follows an active and highly selective management approach. The portfolio management team is based in San Francisco – close to Silicon Valley, the heart of digital disruption – and is supported by a large network of analysts from around the world. More than 500 investment experts from Allianz Global Investors in the world’s financial hubs monitor markets, companies and their performance. Their first-hand insights and expertise provide the basis for decision making within portfolio management. In our view, fundamental company analysis is essential to understand who is likely to benefit most from disruptive AI technology.

  • Investment Philosophy: The Investment Manager seeks to identify equity securities exposed to industrial and process automation, robotics, artificial intelligence (A.I.), and materials science, as well as businesses that the Investment Manager believes can be fundamentally transformed through the future adoption of these technologies. The Fund will aim to outperform the Index by investing in companies or shares the future growth potential of which the Investment Manager believes is being undervalued or underestimated, whilst aiming to reduce the volatility of the Fund’s returns by investing in a diversified portfolio, typically with a low concentration in individual holdings.  Investors should expect an ‘active’ investment approach to investing in global equities as part of which the Investment Manager will actively avoid those companies it believes may be weakened competitively by their failure to innovate or adapt. For the avoidance of doubt, investment in equity securities is not limited to the constituents of the Index.
  • Fund overview: Because of the ‘bottom-up’ active investment approach, the geographic sector and foreign exchange exposure of the portfolio is likely to vary considerably from the Index.

A word from the Fund manager:

Plenty has been written about (big) data but relatively little about the interpretation and productive use of it. Historically, this is because it has been prohibitively expensive to collect and organise into a format for meaningful analysis. Now, for the first time, artificial intelligence (AI) is enabling precisely this on a huge scale.

Arguably, image recognition was the most impactful first-wave application of AI technology. The medical sector adopted it thanks to the relatively simple machine-learning models required and the availability of data sets that can be used for training algorithms.

Looking forwards, natural language processing (NLP) is the second-wave application. It is challenging as huge numbers of parameters are required in the models to enable the knowledge transfer among different tasks during training. While computing intensity increases dramatically, the applications derived would transform many industries.

In non-technology industries , we are seeing early examples of NLP experimentation and adoption in legal, financial and insurance settings – through, say, chatbots and digital assistants – that change how companies interact with customers, driven by the most forward-looking companies.

Such developments are not linear. Politics and regulation has focused on the data sets necessary to train neural networks, the core framework of AI. Any reduction in the availability and/or accessibility of this these would hinder AI’s development. While there is, rightly, increased scrutiny on the use of data that includes sensitive and personal information, the impact on AI development is barely noticeable.

Added to this, in the near term any company that has direct or indirect exposure to China will be impacted by coronavirus-related slowdowns due to the disruption in local supply chains. Longer the term, its spread has raised concerns about the extent of the global economic slowdown.

AI development is ongoing and its benefits will continue. As the adoption of AI grows and the analysis of data it allows improves, we expect to see companies evolve and adapt to the first two waves as well as whatever any third wave of applications may bring.

Xuesong Zhao, Fund Manager, Polar Capital Automation and Artificial Intelligence Fund
(March 2020)

In Closing

All three of these funds offer immense upside. They capture the essence of what it means to invest in AI. And they do so in a comprehensive way. Artificial Intelligence is the new wave that will carry business in the coming years. However, this wave won’t be evenly distributed.

Many tech-based funds and even those within robotics will not benefit equally to those within AI exclusively. This is due in part to the relative stagnation in those fields. Even though growth rates are still high they pale in comparison to the new frontier Artificial intelligence represents. This new tech offers practical solutions across all spectrums thus exponential growth.

These funds offer investors an ability to profit on the front and back end. Meaning that all are actively involved in the companies producing the disruptive tech. And those who will benefit from it greatly. Thus giving prospective investors the ability to profit two-fold.

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Artificial Intelligence as an Investment Frontier