BlackRock, the world’s largest asset manager and parent company of the iShares exchange traded fund line, is redefining its stock-picking process as it begins to rely more on robots or automation rather than emotional human decisions on buys and sells.
The money manager’s stock-picking unit, which depends on active management teams to select investments, has underperformed the competition and has suffered large redemptions as investors pull out, reports Sarah Krouse for the Wall Street Journal.
Clients have yanked money from the actively managed stock-picking unit in three of the past four years, with $275.1 billion in active stock assets under management at the end of 2016, compared to $317.3 billion three years prior.
A growing number of traditional money managers and active fund managers are seeing investors pull their investments. Consequently, more will have to adapt if they want to stay relevant.
“Stock pickers won’t disappear, but like NYSE floor traders, there will be fewer of them,” Bob Pisani said on CNBC.
The firm has now come to the conclusion that it is difficult for human managers to beat the market with traditional bets on large U.S. stocks, so the company has shifted its focus and plans to overhaul its actively-managed equities business to put a greater emphasis on computer models that inform investments.
BlackRock is expected to offer up Main Street customers lower-cost quantitative stock funds based on data and computer systems to make predictions, a process typically associated with large institutional investors.
Active management continues to be challenged as indexing and passive ETFs gain momentum and assets at the expense of traditional open-end mutual fund strategies. Investors are no longer paying up for poor performance. Consequently, more money managers and fund providers are changing their way of thinking – If you can’t beat the market, why not buy the market?
By shifting to artificial intelligence or robo-based stock picking strategies, Blackrock does four things: Provides a more disciplined strategy to stock picking that may not have be adhered to by their portfolio team. Keeps future performance more in line with benchmarks. Reduce cost and head count for portfolio management. Increase savings, which will be passed on to shareholders in the form of lower expense ratios.
The days of the portfolio manager are numbered.
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