Platinum Asset Management founder Kerr Neilson has admitted he is worried about the impact of “really clever artificial intelligence” on active funds management.
Speaking at a Bloomberg event in Sydney yesterday, Mr Nielson said it will be “very interesting” to see how artificial intelligence (AI) is applied to investment markets.
“I’m fearful of it. Because if indeed we can achieve these astonishing breakthroughs with AI, then what does it really mean for active management?” he asked.
“I’m not worried about ETFs and the active/passive story. I’m worried about really clever artificial intelligence starting to have an impact on [funds management].”
Algorithmic trading is already starting to provide “really strange messages” to markets as it is, he said.
“Because people are moving from defensives to more aggressive positions, stocks get dumped on the markets,” Mr Nielson said.
It is difficult for active managers like Platinum to take signals from large market movements on stocks they believed were “bulletproof”, he said.
“It’s that sort of information that has to be absorbed now, which wasn’t part of the equation before,” Mr Nielson said
Mr Neilson also addressed the recent underperformance of Platinum’s international fund, as well as the dip in the fund manager’s share price and subsequent outflows.
“We don’t take much notice because we have a very clear understanding that the moment that you go through a period of underperformance you will lose funds,” he said.
“We’ve just had a prolonged period of underperfomance because … we were not in the US market.”
“To be underweight the market that outperforms the rest of the world by 70 to 100 per cent and still in the last 4 years produce a return of 16.7 versus the index of 16.8 is incredible,” Mr Nielson said.
Platinum is seeking to focus on what is controllable, and ignore the “uncontrollable” factors, he said.
“We will lose funds in all likelihood. But there’s just as much chance as we turn round so in due course there will be a flow back towards us,” Mr Nielson said.
Platinum is looking to play the consumer theme in Asia via local brands, he said – something that could well benefit from the current trend towards right-wing populism and nationalism.
“[Nationalism] is very interesting for local brands in Asia because we can start thinking about what are they worth if they start seeming as interesting as the global brands,” Mr Nielson said.
“The companies we have in our Asian portfolio are typically on price/earnings ratio of less than 15 times and growing at 15 per cent a year.
“So our apparent craziness of being away from the crowd, of being in Asia, may not be so foolish after all. Particularly if we’re right about the price.”
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