AI, What Have You Done for Me Lately?
Hopefully AIs Dream of Making Money
October 2019. Reading Time: 10 Minutes. Author: Nicolas Rabener.
SUMMARY
- AI-focused companies have underperformed markets
- AI-powered ETFs have generated unimpressive returns
- In contrast, AI-powered hedge funds easily beat their benchmark, but the performance can be challenged
INVESTING IN AI VERSUS AI INVESTING
“AI will probably most likely lead to the end of the world, but in the meantime, there’ll be great companies.” – Sam Altman
If investors are looking for that one great AI company that will also end the world, then they should forget Alphabet or Amazon. I’d put my money on the Japanese firm Cyberdyne Inc. Why? Because it bears the same name as the company that created the Skynet AI in the Terminator films. Skynet fulfilled Altman’s prophecy before he made it, albeit on the silver screen, and wiped out human civilization.
The real Cyberdyne is naturally also in the business of creating robots. The stock hasn’t delivered great returns over the last few years, but if the company is anything like its fictional namesake, that is sure to change as its robots advance to Terminator level and work begins on Skynet.
Investors who want to harvest the benefits of AI without the risk of betting on a single company, even one with an alluring name, have a slew of exchange-traded funds (ETFs) to choose from that provide diversified exposure to AI, automation, and robotics companies.
But if investors want to go all in on this so-called fourth industrial revolution, they can forgo AI-focused companies altogether and have AIs directly manage their money.
So with all the buzz about AI, just how well have AI-focused companies and AI-managed ETFs performed?
BENCHMARKING AI-FOCUSED COMPANIES
Despite all the hype about self-driving cars, the internet of things, virtual reality, robotics, and AI, investors have not allocated much capital specifically to these themes. AI and related ETFs in the United States have approximately $6 billion of assets under management (AUM), compared to the $3 trillion in US equity ETFs (read Quant Strategies in the Cryptocurrency Space).
