Artificial intelligence (AI) is gaining widespread attention for its ability to be a disruptive technology that spans across a variety of sectors. In the financial space, AI can be used to perform risk-reward analysis, fraud detection and advisory services, but is it a smart idea to invest in AI-focused exchange-traded funds (ETFs)?
Whether society is ready for it or not, robotics, artificial intelligence (AI), machine learning, or any other type of disruptive technology will be the next wave of innovation. For investors who missed out on the bull market run of FAANG (Facebook, Amazon, Apple, Netflix, Google) stocks, they can look to capitalize on disruptive tech options in 2019 and beyond that.
Disruptive technology is not relegated to certain sectors as it will permeate into all industries in some form or fashion. For example, augmented reality is technology comprised of digital images superimposed over the real world, and its use is primed to drive industry growth–industries like real estate and manufacturing are already putting the technology to use in a variety of ways.
According to the Harvard Business Review, global firm Deloitte identified seven disruptive forces that leaders should understand and incorporate into their strategy for future growth:
- Internet of things (IoT): disrupting the labor market and forcing employees to be “tech fluent.”
- Continued growth of big data via analytics in organizations
- “Cyber-physical world” that focuses on efficiency and the automation of manual tasks
- Automation and higher-level value creation
- The concept of “career” is changing via technology, resulting in a 60-70-year work life with continuous learning and career shifts.
- An explosion in contingent work with a distributed talent pool that improves productivity and speed
- Diversity and generational change for the workforce
One ETF to consider is the ARK Innovation ETF (NYSEArca: ARKK). ARKK is an actively-managed fund that invests in domestic and foreign equity securities of companies that are relevant to the fund’s investment theme of disruptive innovation–thus far, ARKK is up 9.63 percent YTD.
AI Transforming the Financial Industry
ETF Trends CEO Tom Lydon spoke with Yasmin Dahya and Joe Staines, of J.P. Morgan Asset Management on how AI technology is being utilized by ETFs. Staines cites two ways that AI can materially impact ETFs–the first being the innovations that currently appear in today’s technology, such as those implemented by tech giants like Google and Amazon, will make their way into ETFs.
Second, the implementation of AI can be actively incorporated into daily activities with respect to portfolio management.
“Everything that technology has done as a whole to investing as a sector over the last few decades, we’re going to see the same sort of innovative impact from machine learning and AI,” said Staines.
Of course, when such a transformative technology like AI is introduced into a financial industry that can be reticent to change and stuck in tried-and-true ways, it can present a challenge. In fact, as Dahya points out, the first AI conference was in 1956 so the technology has been around for some time–with its slow adoption, Dahya cites that incorporating AI will be more an evolution as opposed to a revolution.
“What I think is happening right now if more of a focus and a dialogue,” said Dahya. “What that sort of means though is you have to separate the noise from the truth a little bit.”
With the availability of AI and its capabilities now being filtered down to the masses, investors can use these tools to incorporate in their own research in order to filter out opportunities. Likewise, portfolio managers and advisors now have access to AI technology that can be built into the financial products, so that investment decisions are made easier by parsing out key points from complex data.
“You’re seeing more and more products right now using AI-driven processes,” said Staines. “Incorporating those can give you an aspect that extends what systematic investing is capable of.”
Of course, as the old adage goes–time is money–that can certainly prove to be beneficial with the incorporation of AI into financial products. By expediting the investment decision-making process even more, portfolio managers and investors can reap the benefits of the efficiency.
For more market trends, visit ETF Trends.
