Anthony Ledford

Machine Learning, driven by the rise of big data and evolving technologies, is emerging as a powerful quantitative investment tool, with financial advisers increasingly recognising the benefits it can bring to investors, according to Man AHL.

A recent survey of financial advisers, who attended a series of adviser events held by Man AHL across Australia earlier this month, found that nearly three quarters of advisers (74%) believe Machine Learning, a branch of artificial intelligence, has the potential to change the way we invest in the future.

Speaking at the adviser events, Man AHL’s Oxford-based Chief Scientist Dr. Anthony Ledford said that Machine Learning has become increasingly important to the alternative investment management industry as it deals with larger and more complex data-sets.

“The rise of Machine Learning in quantitative investing is powered by three separate revolutions: the growth in computing power, the explosion of data generation and the maturing of methodologies from statistics, computer science, mathematics and engineering, amongst other disciplines.”

“As more data become available, sophisticated Machine Learning models enable new patterns to be detected that humans can’t easily spot. The technology is a significant area of research focus for Man AHL and we believe our enhanced focus on Machine Learning will be strongly supportive of the evolution of our quantitative investment strategies,” Dr. Ledford said.

Man AHL has been actively researching Machine Learning techniques for several years, including through its unique collaboration with the University of Oxford – the Oxford-Man Institute. Man AHL has also successfully applied Machine Learning models within its client trading programs.

Allocation to alternatives expected to grow

The survey[1] also demonstrated that financial adviser sentiment towards alternatives such as hedge funds, managed futures and alternative beta remains positive, with 45% of financial advisers planning to increase their allocations to alternatives in the next 12 months and the remaining 55% planning to retain the same allocation.

Low correlation to equity markets was seen by financial advisers as a key benefit of alternative investments for clients (44%), followed by downside protection potential (31%) and the ability to outperform (23%).

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[1] Survey conducted by Man Group. The results of the survey are subjective and should not be relied upon to make investment decisions.

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Sandy Rattray, CEO of Man AHL, who is in Australia this week to meet with institutional clients, said an allocation to alternatives has the potential to provide a true source of diversification for investment portfolios and help investors reduce their portfolio risk, especially during market turbulence.

“Diversification is an important factor that investors should consider when they build their portfolios, especially if concerned about increased volatility,” Mr Rattray said. “The recent market downturn has been a reminder to investors of a lesson that we learnt all too well during the global financial crisis; to protect investments during downturns, investors need to consider more than just a portfolio consisting of equities and bonds.

“Alternatives can often deliver low correlation with traditional assets, potentially providing diversification benefits and improved portfolio efficiency. And trend following strategies in particular have the capability to benefit from falling prices, which can help defend investment portfolios during market disruptions.”

Man AHL is a pioneer in the systematic trading of global markets with a 25 year track record. Man AHL aims to identify and exploit market trends and other inefficiencies using heavily researched systematic trading models, with the focus on delivering a range of absolute return, long-only and momentum-based quantitative products.

Mr Rattray said that since the global financial crisis, investors’ increased interest in alternative investments has encouraged the development of new models as well as applying models to new markets.

“The slow recovery since the global financial crisis in 2007 has heightened interest amongst investors for attractive ways of earning money in market downturns,” Mr Rattray said.  “Man AHL continues to invest in research and technology to create new investment models to meet investors’ varied risk tolerance and investment goals.”

To this end, Man Group has partnered with Oxford University to set up the Oxford-Man Institute of Quantitative Finance with the aim to create a stimulating environment of research and innovation. The laboratory, headed by Man AHL’s Chief Scientist Dr Anthony Ledford, has made significant contributions to Man AHL’s commercial investment activities and Man Group’s researchers benefit from discussions with renowned academics that would be unavailable to them in a purely commercial environment.

Changing investor perceptions

Hersh Gandhi, Managing Director, Asia-Pacific at Man Group said that investors’, especially institutional investors’, perception toward quantitative investing has changed over recent years.

“When investors previously talked about quantitative investing, they often referred to it as ‘black box’ investing and didn’t really understand what it was or how it worked,” Mr Gandhi said. “However quantitative investing is actually very transparent. It is computer-based and takes much of the emotion out of investment decisions.”

“Beyond diversification benefits, investors are also realising the benefits of alternatives to capitalise on any market opportunity to improve performance potential and consistency,” Mr Gandhi concluded.

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