Financial investors are predicting that artificial intelligence (AI) will be just as important as traditional analysis within the next decade, with some even believing it will be more significant. However, when it comes to their own adoption of AI technology, these investors remain ambivalent. According to a survey conducted by Invesco, only 9% of respondents said they currently use AI extensively, while 38% said they use it to a limited extent, and the rest said they do not use it at all.
This contrast highlights the slower pace of AI adoption on Wall Street, despite the hype surrounding the technology. While investors have begun employing machines for tasks such as scanning news for trading signals or analyzing market patterns, they have been hesitant to deploy AI directly for allocation decisions.
Bernhard Langer, Chief Investment Officer of Invesco Quantitative Strategies, explained that people are cautious about fully embracing AI because it is not an easy thing to understand. While AI and big data offer new horizons, investors must approach them carefully and gain a clear understanding of the technology.
Despite their reluctance, most respondents in the survey believed that AI’s primary use case in the financial world is to identify patterns and trends in markets, as it has the potential to significantly enhance portfolio performance. Proponents argue that AI, particularly its data-driven subfield known as machine learning, is better at detecting complex relationships among multiple variables, making it more adaptable to changing market conditions.
The survey also revealed the major challenges perceived by investors in adopting AI. The complexity and interpretability of AI models were cited as the biggest obstacles, followed by concerns about the quality of available data.
Additionally, the survey found that nearly all respondents invest based on factors, which involves selecting stocks based on their attributes. However, the majority of investors adjust their exposures to these trades as the market environment changes and anticipate doing so even more in the future.
Langer noted that the current political environment and rapid interest rate increases make it a challenging time for investment. Investors are actively seeking ways to weather the storm, and adopting a more dynamic approach to factor-based investing could be a successful answer.
To summarize the survey findings:
– 62% of systematic investors believe AI will be just as important as traditional analysis in ten years, while 13% think it will be even more significant.
– Only 9% of investors currently use AI extensively, with 38% using it to a limited extent, and the rest not using it.
– The primary use case for AI identified by respondents is identifying patterns and trends in markets.
– The complexity and interpretability of AI models, along with concerns about data quality, are the biggest challenges in adopting AI.
– Most investors use factor-based investing but adjust their exposures as the market changes.
Overall, the survey highlights the cautious approach of financial investors towards adopting AI. While they recognize its potential importance, they remain uncertain about its current application. As AI technology continues to evolve, investors will need to overcome the challenges and gain a better understanding of its capabilities to fully embrace its potential for enhancing investment strategies.
This article was written based on a survey conducted by Invesco, covering institutional and wholesale investors, such as pensions, sovereign funds, and wealth managers. The survey was conducted in May and June and mostly excludes fund managers.