Produced in partnership with AXA Investment Managers.
For all the talk of how artificial intelligence (AI) will revolutionise the financial advice industry by automating tasks, delivering data-driven insights and helping to monitor and rebalance client portfolios based on a predetermined plan, the real impact of AI has been subdued and progress has been slow.
Adoption is still in the infant stages and largely confined to basic tasks like recording and summarising meetings, drafting communications, and generating reports.
Investment in AI across the advice industry is light, reflecting the limited capital and capability of the average advice business.
However, advice firms can tap into the benefits of AI through their funds management partners, as many are ramping up their use of technology like AI, machine learning (ML) and large language models (LLM) to accelerate and enhance the investment decision-making process.
This is especially true for systematic managers, who use statistical techniques to identify signals and factors, like value, quality and momentum, to generate alpha over the long-term.
Due to advancements in cloud computing, managers are gathering, processing and analysing large volumes of data, identifying patterns and extracting insights on an unprecedented scale.
According to Ram Rasaratnam, chief investment officer of equity quantitative investing at AXA Investment Managers, the latest AI innovations have been useful in improving potential investor outcomes and may continue to do so.
“AI and large language models are having a significant impact on society, revolutionising various industries including wealth management,” he tells Professional Planner.
“At AXA IM, AI is used in many different ways including in portfolio management to support stock selection and portfolio construction. We’re constantly looking at how to enhance these processes and how we can work with advisers, researchers and business partners to share our expertise and increase engagement.”
As a pioneer of factor investing, AXA IM has over 40 years of experience in quantitative investing, dating back to the firm’s establishment by famed finance professor, Barr Rosenberg.
Rasaratnam describes the group as a “fundamental investor” that utilises AI and systematic techniques as a “means to an end”.
“Our approach to being a good fundamental investor and having skill over the long term is to be systematic,” he says.
“We’re investing in assets that we believe will deliver better fundamentals in the future. Our approach is anchored in high quality and low volatility factors. Quality, in particular, is the factor we’ve probably spent the most research hours to over the past few years.”
In 2010, at the request of a large institutional client that wanted global equity exposure in a differentiated and more defensive way, AXA IM developed an actively managed global equity strategy that follows a factor-based investment approach.
This client had been “a little shaken” by the Global Financial Crisis and wanted a strategy that can potentially provide greater downside protection in addition to upside participation across the full cycle, Rasaratnam says.
Since then, the overall strategy has amassed A$12.4 billion in assets under management from both institutional and wholesale investors as at December 2024.
“We originally designed this strategy for an institutional client, but we wanted to make it accessible to clients across the spectrum,” Rasaratnam says.
“Given our size and the significant investment that AXA IM has made in data and technology, we’ve built a highly scalable investment platform, which enables us to offer competitive fees to our institutional and wholesale clients.”
Rasaratnam believes several themes will drive demand for sustainable, factor-based investing, starting with heightened market volatility, due to developments in the US.
“With the new US administration, it feels like there’s more uncertainty in the market, particularly around where the US stands in terms of fiscal and monetary policy, as well as foreign policy, and how this impacts equity portfolios,” he says.
“Our strategy is designed to handle volatile conditions and has defensiveness built in. It aims to invest in stocks that can potentially deliver sustainable earnings and have resilience built in at the stock level.”
Another factor driving long-term demand is the increasing focus and urgency surrounding climate change and the energy transition, notwithstanding some recent opposition.
AXA IM’s approach to sustainability is two-fold. Stock selection is driven by the search for sustainable earnings – defined as companies with consistent and reliable profits through different market cycles – as well as companies with solid environmental, social and governance (ESG) credentials.
Irrespective of market conditions and the current political climate regarding ESG and diversity, equality and inclusion (DEI) issues, advancements in technology and the rise of AI are accelerating and intensifying. This creates opportunities for managers to support advisers in leveraging their knowledge, skills and technology.
AXA IM’s quantitative investment team is a diverse mix of backgrounds and experiences, representing individuals from 8 different countries with 6 different native languages spoken. “Finance professionals increasingly need the ability to understand the economy and companies, as well as mathematic, programming and machine learning, which are not easy to find,” Rasaratnam says, highlighting that these skills are not commonly found in advice and wealth management firms.
When it comes to technology, managers and advice firms can’t afford to stand still given the pace of change, he says.
“Businesses need to continuously enhance their systems and processes,” he says.
“With quantitative managers, investors may gain transparency and repeatability, but they could also benefit from constant upgrades and innovation, as the stock selection models are continuously evolving.”
“The fundamental characteristics of the investment strategy don’t change but managers are always learning and delivering improvements to clients.”
