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Johannesburg - South Africa’s first machine learning-powered unit trust was launched on Tuesday, using digital computing power to drive research, analysis and stock selection.
And its founders, including former FNB CEO Michael Jordaan, believe that cutting out human bias will give the trust an edge.
The trust is brainchild of the fintech startup NMRQL Research, which said its machine powered unit trust algorithm allows it to discover "hidden patterns" in underlying big data.
"Once discovered, these patterns can be exploited to forecast returns across all asset classes and markets, resulting in steady long-term growth of capital and income", the firm said.
Jordaan is the chairperson and a director of NMRQL Research, which hopes to shake up local asset management industry with its unique offering.
He said that machine learning has already disrupted the fund management industry globally.
“The launch of this fund in South Africa marks the start of a paradigm shift that the local investment management industry will soon experience,” said Jordaan.
“In addition to the vast amount of data that the algorithm is able to process, the investment philosophy eliminates emotive decision making, which allows the model to remain rational at all times."
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NMRQL CEO Tom Schlebusch said machine learning changes investing from a "biased, human-centric investment process" to a "non-emotive, unbiased algorithmic-driven process" that continuously learns and adapts to changing environments.
“Machine learning equips fund managers with the tools to assess historical and present data, to help predict future risks and returns based on large volumes of data,” he said.
He said that NMQRL calculated around 2 million data points each time the firm rebalanced its portfolio.
Jordaan, meanwhile, said that cognitive biases of humans negatively impact on their objective reasoning skills when choosing investments. “These are compounded when financial repercussions are involved,” he said.
Chasing historical data
The firm’s chief engineer Stuart Reid said that NMRQL's algorithm allows fund managers to use historical data to investigate exactly how the fund would have behaved using only information available at that point in time.
"By using more than 1000 different models and applying an algorithmic voting system, NMRQL is then able to produce portfolios with the best possible chance of outperformance," Reid said.
The trust aims to achieve steady long-term growth of capital and income by investing in a diversified portfolio of domestic and international assets. Schlebusch said the asset allocation and stock selection is systematically managed using machine learning algorithms.
According to NMQRL's website, meanwhile, the minimum investment amount in the fund is R100 000.
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