According to Dave Allen of Plato Asset Management, the future of stock picking will be defined by the ability to efficiently process vast amounts of data. Allen suggests that traditional bottom-up fund managers, who rely on human judgement instead of algorithms to analyse earnings calls and analyst reports, are at a growing disadvantage. He likens this ‘artisanal’ approach to Japanese companies still using fax machines well into the 21st century, highlighting the importance of leveraging data analytics in modern finance. Plato Asset Management is a Sydney-based fund manager specialising in income solutions for retirees and superannuants, aiming to deliver consistent returns and manage risk effectively.
Allen, who holds a PhD in quantitative finance from the University of Cambridge, advocates for a balanced approach that combines human insight with machine learning capabilities. He believes the ideal investment strategy incorporates both qualitative analysis and the power of algorithms to process and interpret complex financial data. This hybrid model aims to leverage the strengths of both human expertise and technological efficiency, mitigating the weaknesses of relying solely on either approach.
Conversely, Allen notes that offshore quantitative funds driven by artificial intelligence, such as Two Sigma and Susquehanna, alongside hedge fund pods like Millennium, are facing scrutiny. These firms, known for trading on daily market events, have been blamed for contributing to market volatility on the ASX during the August reporting season, highlighting some of the pitfalls of AI-driven strategies.
Ultimately, Allen’s perspective suggests a shifting landscape where data proficiency and analytical capabilities will increasingly determine success in stock picking. Fund managers must adapt by integrating advanced technologies to remain competitive and navigate the complexities of modern financial markets.
