Pictet Asset Management (Pictet AM) has announced the launch of Pictet-Quest AI Driven Global Equities, an enhanced index strategy that harnesses the scale and efficiency of artificial intelligence for stock selection. The fund will target a return of 1.5% (before fees) above the MSCI World per annum with a low tracking error and lower fees than traditional active approaches (20 bps management fee).
During the pre-pandemic equity bull market, the longest in history, asset managers and investors built up significant core holdings through simple index replication. However, Pictet AM forecasts only c6% per annum from global equities over the next 5 years.
Investors should consider enhanced indexation as a more powerful replacement to core holdings as just an additional 1% is meaningful in a low growth environment for equities.
Pictet AM’s Quest (Quantitative Equity Strategies) investment team have developed a proprietary and innovative stock selection model to forecast returns. Rather than using smart or exotic beta, the team use well-established and verified data sets to analyse equity markets. They have created a transparent tool that seeks to predict, with an extremely high degree of confidence and precision, the alpha component of a stock and optimise it in a portfolio.
David Wright, Co-Head of Quest, explains: “The rapid expansion of machine learning and AI, combined with improved market data quality, now makes it possible to systematically add incremental outperformance that can have a profound affect in the long term. A 1% after fees difference in the performance of a global equity index annually equates to just under 11% extra return compounded over 10 years.”
Stéphane Daul, Lead Portfolio Manager, adds: “We believe the existing quant factor investments offered by the broader industry have limitations, particularly when changes to the economic regime occur. Pictet’s privately owned status and long-term approach to investing has allowed our 20-strong team to take the time to diligently build, train and test machine learning models that confidently deliver better outcomes for investors.”
