The death of active management and the rise of artificial intelligence

A few days ago we had breakfast with an article titled “ChatGPT Builds More Profitable Portfolios Than Core Funds”. Indeed, in an experiment conducted in the United Kingdom, ChatGPT was asked to select 38 companies to form an investment fund. 8 After eight weeks, the fund had returned 4.9%, compared to an average loss of -0.8% for Interactive Investor’s top 10 funds. These funds include some renowned as Fundsmiths, as well as other funds from the world’s leading managers.

We also have a study done every year by Pablo Fernandez, a well-known finance professor from IESE Business School, in which by randomly selecting different companies, he generally gets returns higher than the average of the fund in the market.

Looking at these types of studies and the advancement of artificial intelligence, it is possible to consider the role of a fund manager and the role of a portfolio manager. Even more so when almost 30% of adults in the United Kingdom already give their advice with or are considering doing so with Artificial Intelligence tools: ChatGPT in particular.

In the industry we see how effective, more and more, we find ourselves with quantitative funds, portfolios built with artificial intelligence, roboadvisors, portfolios of index funds or ETFs, and all kinds of tools that can be used in any manager’s mind. are more powerful than , How are we going to compete with models whose capabilities are far greater than that of a portfolio manager? Even more so when the commission on these vehicles is usually low. Who is ready to pay for investment management? Many may think that artificial intelligence is the end of many jobs – as is already being seen – including investment manager.

In reality, this should not be taken as a chronicle of the declared death of portfolio and fund management, but rather as an encouragement to return to the essence of management. And it is that quantitative data are very important, but they are not everything. Besides, this is not the most important thing, far from it. In fact, an S&P study that aggregates US equity funds shows that very few have the consistency of remaining in the best quartiles for consecutive periods of 5 years. Notably, in the case of large cap funds, the percentage of funds still in the first quartile after 5 years is zero!


This is where the magic of humans comes in and the importance of qualitative analysis that artificial intelligence cannot provide, let alone a quantitative model, no matter how sophisticated the tools. Economic science is a social science and finance as a part of economics is also a social science. Hence the subject of study is man. Popperian scientific method works in natural sciences. Not in the science of human action. Therefore, we must keep the person as the starting point in making decisions.

One of the more recent branches of economics is behavioral finance, which will play a more important role in decision making by managers. And that is, if we don’t pay attention to the human being, to his actions, then artificial intelligence will effectively eliminate the role of managers. But if, in addition to analyzing quantitative data, we focus on the individual, the manager delivers much more significant value than the intelligent model.

grow or die Managers who know how to identify the needs of human beings, how to incorporate qualitative tools into their study, and who know that human beings are the center of their study, will have the potential that no machine can ever beat them. Can’t snatch These managers will add significant value to their companies and will be irreplaceable to their clients. Anyone who does not know how to adapt to changes and return to the essence of our science, better look for another job. In this time of so many technological advances, we’re going to find out who gets naked when the tide goes out. Far from seeing the death of active management, it will have more added value each time; Yes, for those who know how to customize.