Last Word
Perspective
ARTICLE
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Investment Manager
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Square Mile
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Fund Buyer
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strategy directly from the Investment Manager.
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research and market views together with an explanation of the
The Sanlam Managed Risk UCITS Fund aims to provide long term capital growth through exposure to world equity markets in a risk controlled manner. The Investment Manager utilises an Artificial Intelligence (AI) machine learning investment engine that drives the risk management strategy in order to minimise capital loss and time in loss risk while maximising total returns over a market cycle.
Axis analyses the fund from four perspectives to bring you insight,
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Review By Nicola Brittain
COMPANY_ Last Word
The Baillie Gifford European Fund has a pretty convincing premise, it invests in companies that are leaders in niches often overlooked by the wider investment community. When combined with a long-term approach, when the general market is increasingly short term, this strategy means the fund is able to buy quality stocks at often excellent valuations.
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“The European equities team, led by Stephen Paice, chooses stocks with the following characteristics: they must be aligned to their customers and Baillie Gifford’s long-term philosophy; they must show good growth potential; and they must have a competitive edge over their peers.”
JOB TITLE_ Investment Writer
YEARS IN INDUSTRY_ 6
LOCATION_ London
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at Last Word
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NICOLA BRITT_
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The new saviour?
COMPANY_ Square Mile Investment
To view Square Mile Investment Consulting and Research Ltd's disclosure on their involvement on this site, please click here.
JOB TITLE_ Head of Quantitative Research
T_
“The AI deployed by these funds will develop knowledge from market data and then self-adjust its process following developments in this data.”
The adoption of AI has become a big theme of the last couple of years, with many fund management group launching specific funds investing in the sector. However, like robo advice is being touted in some corners as being set to replace human financial advisers, could using AI be a better way of accessing global stock markets than human managers?
Scroll down to read more...
YEARS IN INDUSTRY_ 8
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Last Word
Perspective
Man versus machine has long been the stuff of dreams for science fiction writers. Blockbuster films such as Terminator and Bladerunner are just two that explored the notion of robot uprisings stemming from the artificial intelligence that humans have created.
However rather than replacing mankind, when Sanlam Global Investment Solutions (SGIS) announced last year that its Sanlam Managed Risk UCITS Fund was to be enhanced by AI, it flipped the argument that in today’s world it is not about man versus machine, it is instead man with machine versus man without.
By way of background the strategy was first launched back in 2007, but until June 2017 was managed by a systematic investment strategy. For those not in the know, this means that the strategy was run by an algorithm which just means a strictly rules based investment process.
“We had a capability that worked really well, but as with any systematic strategy it liked a trend or momentum,” explains Gideon Nell, global head of business development at SGIS. “So it really likes rallying bull markets, or crashing bear markets, but it does not like sideways moving markets and it especially does not do well in V-shaped markets (a sharply falling market that recovers all of its losses in a matter of days or weeks).”
The issue with systematic or “old quant” approaches is they work until they stop working because the set of rules that were originally written no longer apply in the current market environment. So how have SGIS addressed this?
Holding no bonds, property or commodities, Gideon describes it as a simple portfolio consisting of a passive global equity holding and cash exposure with dynamic protection via a short equity futures position that is always negatively correlated to equities and adjusted weekly.
“Undoubtedly the biggest challenge for anybody constructing a portfolio is the fact that all assets now tend to correlate during a crisis,” says Nell. “Bonds simply are not able to fulfil the risk management function they did in the past and it will be some time before they will be able to again enjoy the capital gains they have for the past 3 decades.
With the AI essentially rewriting itself every week based on new data and predictions, the end result is a genuine dynamic asset allocation, which Nell argues you simply would not see from a human fund manager. For example, having started 2018 with equity exposure at 87%, the day before markets sold off heavily at the end of January, the AI dropped the equity weighting right down to 26%. In February the exposure rose back up to 82%, before dropping back to 19%, again before markets fell off.
“This has translated to investors being able to participate in the gains, but also helped them defend against the deep drawdowns we had at the time,” says Nell.
“As a result the Sanlam Managed Risk Fund can serve as an all-rounder solution and rather uniquely with suitability criteria across the risk spectrum. It has a shorter capacity for loss and recovery profile than cautious funds, a similar risk tolerance or volatility profile to Moderate funds and a significantly stronger total return or outcome profile than Aggressive funds.”
Man with machine versus man without
AUTHOR_ ADAM LEWIS
While systematic processes rely on computers to do the calculations, their rules are still driven by human thought processes and updated on an ad hoc basis by humans. The Sanlam Managed Risk UCITS Fund is driven by Artificial Intelligence (AI) that autonomously learns from new data, comes up with its own rules, writes its own algorithms and makes its own predictions. This also makes it entirely absent of human emotions or behavioural biases. It is important to note that is there human oversight of the entire process of the SMR Fund.
Claiming to be the first mixed-asset fund in the world to be driven by AI, Nell says such a process was made possible due to the era of big data which gave birth to AI and self-learning machines.
As a result, rather than just being backward looking and reactive, Gideon says the AI analyses the data as it comes in, looks forward, predicts and makes decisions proactively. This, he argues, makes a huge difference and especially so when markets become more volatile as they have been in 2018.
Launched with the purpose of delivering returns in excess of equities over a cycle, but with less volatility and materially less capital loss and time in loss risk, SGIS have positioned the fund as a next generation UCITS solution to help investors diversify their mixed-asset manager risk.
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Kames Global Diversified Income Fund
Fund
Vincent McEntegart has been managing the Kames Global Diversified Income Fund for six years and is well-versed to the changeable financial climate. Curabitur blandit tempus porttitor. Aenean lacinia bibendum nulla sed consectetur.
Manager
Vincent McEntegart
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The only concern is that like humans, AI learns from its mistakes and the process only adapts once a significant event or change has taken place. Overall the introduction of AI into the investment world should be seen as a positive and if done correctly can be a good development to quantitatively driven strategies, given the fact that it can potentially counteract some of the deficiencies associated with human coded quantitatively driven strategies.
However experiments have been conducted on driverless cars since the late 1920’s and we are still to yet see legal driverless cars on the UK road. This highlights that in all areas of AI, improvements and adjustments need to be made as nothing is perfect.
AUTHOR_ TOM POULTER
“Many are worried big data will lead to information overload, but actually what people should be worried about is filter failure. Which is the inability to filter big data into more manageable chunks. Historically, old quant funds have struggled during market inflection points as they underperform when markets fall and don’t bounce back as quickly when markets rebound. This is normally during a period when investment sentiment overrides market fundamentals. ”
AI is now starting to be applied to a number of funds including the Sanlam Managed Risk UCITS Fund. The AI deployed by these funds will develop knowledge from market data and then self-adjust its process following developments in this data. In theory this process is more forward thinking than the standard quantitative funds available to investors that have a fairly rigid process.
One of the major criticism of quantitative driven strategies is that they assume that what happened in the past is likely to happen in the future, even though we are fully aware that this is not true. As shown by the fact the next significant market drawdown following the dot com crash was not another dot com crash but instead a financial crisis which caused many banks which were perceived to be defensive assets to fall.
AI funds have the ability to counteract this by instead of having a rigid process based on past performance, it would be able to learn from the past and adapt the process to the current market conditions.
Artificial Intelligence, or AI as its better known, has been branded about in many different industries as the new saviour.
But what is actually AI? Well AI is when a machine learns iteratively from large sets of data, recognise items of interest, deduce relationships, make predictions and autonomously adapt when confronted with new data, without being explicitly programmed (no pre-set rules). It is also able to learn from new experiences, adjust to new inputs and perform human like tasks.
The deep learning element is what differentiates an AI machine from a normal machine and can effectively make them self-sufficient. This is not a new phenomime as machines have been playing chess against humans from as early as 1956.
However the rise of Big Data and the development of AI has meant that the machines are now tasked with writing their own rules as a function of the evolving data they observe and the use of AI by Amazon, Google, etc. has led to the term has becoming more prominent in recent years.
What is AI?
Tom Poulter, Head of Quantitative Research, Square Mile Investment
Square Mile
Perspective
Fund buyers' perspective
Sanlam Managed Risk has exceeded expectations since adopting a fully-fledged AI approach in 2017.
Market Reaction
Next
Jonathan Woo_ investment research_ Santander Asset Management
×
“There has been considerable structural reform in giant markets like India, China and the Pacific Tiger economies. It’s a time of change from investment in infrastructure to innovation. Baillie Gifford looks for superior growth, meaning its style is suited to this change. They make some debatable valuations but are valiant investors and can spot businesses with great fundamentals early. They are picking the sort of businesses that have the potential to steam ahead and accrue multiple years of earnings growth for investors.”
Scott Spencer_ Investment Manager_ F&C Multi-manager solutions, BMO Global Asset Management
“The key rationale behind Income Maximiser is the delivery of a 7% yield. The use of derivatives in the portfolio means the upside is therefore limited but we find the fund is a lower beta way of getting equity exposure as well as some downside protection.”
“The fund managers of Schroder Income [Nick Kirrage and Kevin Murphy] pick the stocks, and the derivatives for Income Maximiser are then written accordingly. We like the fact that derivatives provide a diversification element and we have a great deal of confidence that the derivatives are run by a separate team. It is a very different skill set and is a USP of theirs.”
Richard Philbin_ CIO_ Wellian Investment Solutions
Mona Shah_ head of collectives_ Rathbones
“After years of lacklustre performance, Asia and the emerging world experienced a resurgence last year, driven by rising commodity prices and a fundamental shift in favour of more cyclical sectors like financials, energy and materials. But many of the fortunes of Asia and emerging markets are driven by sentiment from the West, which was negatively affected by the US election in November. While markets have regained their initial losses, we’ve had no more clarity on what Donald Trump’s policies will mean with regards to global trade and protectionism. For this reason, we believe that diversification should offer benefits in a period where markets are likely to be volatile. In addition, the economies in Asia-Pacific are showing increasing dependence on domestic demand, and we believe funds exposed to growing demand from consumers in China, for example, may be better placed to withstand headwinds from the US.”
Robert Shepherd_ Director_ Bright & Co.
We were on the lookout for something different and, let’s face it, 4% or lower is the norm in this environment. So this is attractive”
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Achievable, sustainable, reliable
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Investment
Manager
Perspective
Fund Buyer
Perspective
This demo version has been optimised for desktop, laptop and tablet. Smartphones, iPhones will be supported in the next version.
to bring you insight, research and market views
together with an explanation of the strategy
directly from the Investment Manager.
Axis analyses the fund from four perspectives
Holding no bonds, property or commodities, Gideon describes it as a simple portfolio consisting of a passive global equity holding and cash exposure with dynamic protection via a short equity futures position that is always negatively correlated to equities and adjusted weekly.
“Undoubtedly the biggest challenge for anybody constructing a portfolio is the fact that all assets now tend to correlate during a crisis,” says Nell. “Bonds simply are not able to fulfil the risk management function they did in the past and it will be some time before they will be able to again enjoy the capital gains they have for the past 3 decades.
With the AI essentially rewriting itself every week based on new data and predictions, the end result is a genuine dynamic asset allocation, which Nell argues you simply would not see from a human fund manager. For example, having started 2018 with equity exposure at 87%, the day before markets sold off heavily at the end of January, the AI dropped the equity weighting right down to 26%. In February the exposure rose back up to 82%, before dropping back to 19%, again before markets fell off.
“This has translated to investors being able to participate in the gains, but also helped them defend against the deep drawdowns we had at the time,” says Nell.
“As a result the Sanlam Managed Risk Fund can serve as an all-rounder solution and rather uniquely with suitability criteria across the risk spectrum. It has a shorter capacity for loss and recovery profile than cautious funds, a similar risk tolerance or volatility profile to Moderate funds and a significantly stronger total return or outcome profile than Aggressive funds.”
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Income
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m
Launch date_25/02/2014
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Number of
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%
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Kames Diversified Monthly Income Fund
pa paid monthly
Performance
since launch_
Total return
target_
Click for sound
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The Sanlam Managed Risk fund is enhanced by Artificial Intelligence using a team of 600 virtual Investment Analysts, one virtual Head Analysts and one Virtual Risk Manager.
602 Virtual AI Machines
Investment
Non-human Investment Management Team
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602 Virtual AI machines
The adoption of AI has become a big theme of the last couple of years, with many fund management group launching specific funds investing in the sector. However, like robo advice is being touted in some corners as being set to replace human financial advisers, could using AI be a better way of accessing global stock markets than human managers?Scroll down to read more...
AI is now starting to be applied to a number of funds including the Sanlam Managed Risk UCITS Fund. The AI deployed by these funds will develop knowledge from market data and then self-adjust its process following developments in this data. In theory this process is more forward thinking than the standard quantitative funds available to investors that have a fairly rigid process.
One of the major criticism of quantitative driven strategies is that they assume that what happened in the past is likely to happen in the future, even though we are fully aware that this is not true. As shown by the fact the next significant market drawdown following the dot com crash was not another dot com crash but instead a financial crisis which caused many banks which were perceived to be defensive assets to fall.
AI funds have the ability to counteract this by instead of having a rigid process based on past performance, it would be able to learn from the past and adapt the process to the current market conditions.
“Many are worried big data will lead to information overload, but actually what people should be worried about is filter failure. Which is the inability to filter big data into more manageable chunks. Historically, old quant funds have struggled during market inflection points as they underperform when markets fall and don’t bounce back as quickly when markets rebound. This is normally during a period when investment sentiment overrides market fundamentals.”
AUTHOR_ TOM COULTER
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Subtitle of introduction panel
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market viewpoints, together with the
to bring you incisive analysis, research and
Fund Manager’s own investment strategy.
Axis interrogates the fund from four perspectives
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However rather than replacing mankind, when Sanlam Global Investment Solutions (SGIS) announced last year that its Sanlam Managed Risk UCITS Fund was to be enhanced by AI, it flipped the argument that in today’s world it is not about man versus machine, it is instead man with machine versus man without.
By way of background the strategy was first launched back in 2007, but until June 2017 was managed by a systematic investment strategy. For those not in the know, this means that the strategy was run by an algorithm which just means a strictly rules based investment process.
“We had a capability that worked really well, but as with any systematic strategy it liked a trend or momentum,” explains Gideon Nell, global head of business development at SGIS. “So it really likes rallying bull markets, or crashing bear markets, but it does not like sideways moving markets and it especially does not do well in V-shaped markets (a sharply falling market that recovers all of its losses in a matter of days or weeks).”
The issue with systematic or “old quant” approaches is they work until they stop working because the set of rules that were originally written no longer apply in the current market environment. So how have SGIS addressed this?
Click for sound
Investment Analysts, one virtual Head Analysts and one Virtual Risk Manager.
The Sanlam Managed Risk fund is enhanced by Artificial Intelligence using a team of 600 virtual
The adoption of AI has become a big theme of the last couple of years, with many fund management group launching specific funds investing in the sector. However, like robo advice is being touted in some corners as being set to replace human financial advisers, could using AI be a better way of accessing global stock markets than human managers? Disclaimer »
“While most traditional quant strategies tend to struggle in choppy markets, the Sanlam Managed Risk UCITS Fund has actually exceeded expectations since becoming a full AI-managed fund, operating at low volatility levels totally disconnected from (and hugely outperforming on a risk-adjusted basis) the MSCI World from which it generates absolute returns. What’s most exciting about SMR is its capability to generate returns at a limited amount of each portfolio’s risk budget. Relying entirely on human managers to do that in the market conditions we face today is akin to facing Anthony Joshua in a boxing ring with a hand tied behind your back.”
Paul Gambles_ director_ MBMG Investment Advisory
Cameron Knox_ Imperial Capital
“Our rationale for using the Sanlam Managed Risk UCITS Fund comes down to several factors. Firstly we like the diversification if offers in terms of management type, namely AI versus in addition to a human manager. Being a daily-traded Dublin UCITS fund we like the liquidity if offers, while cost wise, versus other multi asset funds to which it is compared, the price is low. Lastly in terms of risk matching, given the fund’s wide remit it could be seen as almost a cautious/balanced risk profile, with a potential growth performance outcome.”
Robbin Davies_ RD Consultancy
“One of the unique characteristics of the Sanlam Managed Risk UCITS fund is its ‘all-rounder’ application. By that I mean the fund offers criteria that can be matched across the entire investor risk-spectrum, owing to the fact it has a shorter draw-down recovery profile than most conservative funds, the same volatility to the average moderate fund and a better total return profile than aggressive funds. As a result, it has a place in almost every type and style of portfolio I manage, making me feel, comfortable with it as a core holding.”
Sanlam
Managed
Risk UCITS
and market views together
Axis analyses the fund
strategy directly from the
from four perspectives to
bring you insight, research
Investment Manager.
with an explanation of the
Click for sound
“Our rationale for using the Sanlam Managed Risk UCITS Fund comes down to several factors. Firstly we like the diversification if offers in terms of management type, namely AI versus in addition to a human manager. Being a daily-traded Dublin UCITS fund we like the liquidity if offers, while cost wise, versus other multi asset funds to which it is compared, the price is low. Lastly in terms of risk matching, given the fund’s wide remit it could be seen as almost a cautious/balanced risk profile, with a potential growth performance outcome. ”
Scroll down to see what the Investment Manager has to say...
Scroll down to see what the Fund Buyers have to say...
“The UK equity portfolio is based on the Chris White-managed Premier Income Fund that is currently expected to generate a yield of 4% to 4.5%.”
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Review By Gary Corcoran
Chris White and Geoff Kirk joined forces in October 2017 to co-manage the Premier Optimum Income Fund. As the new fund managers, they have made changes to the way the UK equity portfolio and covered call strategy is managed, introducing an explicit target yield of 7% p.a.
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YEARS IN INDUSTRY_ 25+
JOB TITLE_ Director
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Fund
Manager
Perspective
“The issue with systematic or 'old quant' approaches is they work until they stop working because the set of rules that were originally written no longer apply in the current market environment.”
Review By Adam Lewis
A_
The Sanlam Managed Risk (SMR) UCITS Fund is a mixed-asset portfolio that fully utilises artificial intelligence to both minimise the risk of losing capital and maximise total returns over a market cycle. Holding no bonds, property or commodities, it consists of a passive global equity holding and cash exposure with dynamic protection.
Scroll down to read more...
YEARS IN INDUSTRY_ 17
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ADAM LEWIS
The Sanlam Managed Risk (SMR) UCITS Fund is a mixed-asset portfolio that fully utilises artificial intelligence to both minimise the risk of losing capital and maximise total returns over a market cycle. Holding no bonds, property or commodities, it consists of a passive global equity holding and cash exposure with dynamic protection.
Review By Adam Lewis at Last Word
Review By Adam Lewis
at Last Word
Number one ranked fund
01/07/2006
Human portfolio managers
Equity
range
Source: Sanlam
As of end of September
Assets under
management
in Morningstar Flexible allocation sector since AI enhancement in Q2 2017
Number
of years
Sanlam Managed Risk UCITS
5 star Morningstar and Crown Fund Rating from FE
Sanlam has been running
1
2
3
4
5
$
6
7
8
9
0
Source: Eastspring Investments
Data from 31 Mar ’08 - 31 Dec ‘17
Eastspring Investments Japan Smaller Companies Performance
-30
Return (p.a.)
-20
Sharpe
20
Eastspring Investors Japan Smaller Companies
30
10
Max Drawdown(%)
-10
Russell Nomura Mid Small Cap
-50
Volatility (%)
-40
Data from June ’17 to October ‘18
Source: FE Analytics
Net Equity Exposure
Weekly net equity exposure since AI
Jan ‘18
Apr
12
Mar
100
Jun
0
Nov
80
Sep
Aug
Jul
Sanlam Managed Risk
Oct
2
16
60
14
May
Feb
Jun ‘17
40
EAA Fund $ Flexible Allocation
Dec
Data from June '17 to October '18
Source: Morningstar
Performance of Sanlam Managed Risk UCITs
since AI adoption
29 Sep ‘17
9 Jul ‘17
15
31 May ‘18
Morningstar USD Flexible Allocation Sector
31 Jan ‘18
SMR Fund Return
28 Sep ‘18