Artificial intelligence is dramatically transforming our lives, by learning to perform tasks that hitherto required human intelligence
It is filtering into all areas of work and life, and is emerging as one of the mega trends of the coming decades.
But how do investors get involved? There are both actively managed and cheaper passive funds available that invest in AI technology.
However, the opportunities still come with a high level of uncertainty and, as well as the possibility of strong gains, you could lose money. AI should only be a small proportion of your investment portfolio for most people and should not be money that you can’t afford to lose.
While change is happening at an almost frantic pace, it still can’t be viewed as a get-rich-quick scheme.
As John Gladwyn, investment manager at Pictet Asset Management, explains: “We are long-term investors and encourage investors seeking exposure to these markets to take a long-term view; it will take a long time for these mega trends to play out fully.”
From PAs, such as Siri, to self-drive cars, AI is already changing our lives
Investing in different types of AI
Researchers at the cutting edge of AI are working on ‘general AI’, which aims to develop intelligent computers that can think and plan across broad areas, teaching themselves just like humans.
Yet the most promising near-term uses are in ‘narrow AI systems’ such as stock-trading algorithms.
Its uses are growing fast. IDC, a US Market intelligence firm, forecasts cognitive and AI spending will grow to US$52.2 billion in 2021, achieving a compound annual growth rate of 46.2% over the 2016-2021 period.
Sheridan Admans, investment manager at The Share Centre, says: “Artificial intelligence systems are becoming entrenched, operating silently in the background… From personal assistants such as Siri to self-driving cars, AI – which is often depicted in fiction as taking on a human form – today manifests itself as search algorithms, such as those used by Google, news generation often referred to as ‘news bots’, medical diagnoses and minimally invasive prostatectomies,plus cybersecurity and autonomous weapons systems.”
AI funds
For those investors seeking to profit from this nascent technological revolution, probably the safest way is via a collective investment vehicle. In recent years, a number of funds have been launched that provide explicit exposure and some diversification in what is still a very high-risk area.
One such fund identified by Ms Admans is the Pictet Robotics fund, which was launched in 2015.
Senior investment managers Peter Lingen and John Gladwyn jointly manage this fund, and Mr Lingen told Moneywise: “We focus our investments in robotics, automation and AI, and we are extremely excited by the potential of these three markets. Given the breadth of use-case/adoption, we do not want to be constrained to the traditional tech sector, parts of which address legacy end markets.
“Similarly, we also want to have breadth across our investment universe so that if one area becomes overheated we are able to allocate assets away from this area into investments where we see better return potential.”
While the fund holds some stocks that could be found in most tech funds, one that isn’t to be found in many and yet offers exposure to AI is Siemens Healthineers.
“Healthineers is a market leader in imaging, diagnostics and advanced therapies. Its new Atellica Solution is leading the automation of the diagnostic lab. Furthermore, Healthineers is taking advantage of its unique position to enable ‘algorithm-supported solutions’, which will both improve patient outcomes and help reduce costs in healthcare,” says Mr Lingen.
An AI-badged fund was launched by Smith & Williamson in June 2017 and, unsurprisingly, its manager Chris Ford is keen to stress the advantages of a specialist AI-focused fund.
“A traditional technology fund will be somewhat hidebound within the sector it is designed to invest in, and as a result is probably missing out on the AI opportunities that exist in sectors such as consumer services, healthcare, energy, financial services and industrials,” he says.
Change is at a frantic pace, but it’s not a get-rich-quick scheme
Offering some exposure to ‘narrow’ AI, AXA Framlington has a Robotech fund that was launched in February 2017, run by Tom Riley. It offers exposure to a robotics market that is estimated to grow 10% to 15% a year until 2025, with what it claims is “a focus on the investable area of the robotics market such as industrial automation, robotics-assisted surgery, driverless vehicles and the underlying intelligence that supports robotic technologies”.
Most recently, Polar Capital also launched an AI-themed fund in October 2017.
The Polar Capital Automation and Artificial Intelligence fund, is run jointly by Ben Rogoff, Nick Evans and Xuesong Zhao. With approximately £350 million funds under management, it is dwarfed by the £1.9 billion Polar Capital Technology Trust, also run by Mr Rogoff, whose share price is up by approximately 1150% over the past 10 years.
Mr Rogoff admits to being hugely excited by AI, but cautions: “I think that for the bulk of the decade to come AI will remain narrow in focus and will be used primarily to augment human decision-making,” he says.
“The exposure in our AI fund today is largely limited to the technology enablers, primarily in the same stocks that the investment trust will invest in. But the long-term plan is very much that as we can identify companies that benefit from AI, we can buy those companies within it. While cloud computing and ubiquitous mobile internet have been core themes within our portfolios over the past decade, we expect adoption of AI to be the driver of the next technology cycle – although we are early in the adoption cycle,” he adds.
Mr Rogoff’s funds hold companies that are enabling AI, such as Nvidia and Xilinx, which are computer-chip companies, and Google, Amazon and Microsoft, which are providing platforms for other companies to access neural networks (computer systems modelled on the human brain and nervous system).
One more general technology trust that Mr Admans suggests for exposure is AXA Framlington Global Technology, which is in The Share Centre’s preferred range of funds. Run by Jeremy Gleeson, it numbers among its top three holdings Alphabet, Apple and Facebook.
Passive investing
For those willing to invest in AI via an exchange traded fund (ETF – a fund that can be bought and sold like a share), there are a couple of options cited by Mr Admans.
“Investors with a preference for index trackers might consider the iShares Automation & Robotics ETF, which seeks to track the performance of an index composed of developed and emerging market companies that are generating significant revenues from specific sectors associated with the development of autonomous and robotic technology.
“Another suitable option could be the GO Units Solutions Robo Global Robotics & Auto (ROBG), which tracks the performance of the ROBO Global Robotics and Automation UCITS Index.”
Chris Menon is a financial journalist and runs the investing blog Safestocks.co.uk
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