03 Jan 2025

AI and Investments

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Market Weekly

Market Weekly

AI and Investments

Artificial Intelligence (AI) has been at the forefront of technological progress in 2024.

AI defined


There have been remarkable advancements, from creating personalised treatment plans within healthcare, to autonomous vehicles using AI for driving. But how is AI being utilised within the investment industry? When looking at AI impact on the economy, there are at least two important areas we consider. First, how can AI, especially machine learning and big data technologies, improve our analysis? Second is the impact of AI innovations, tools, and services on economies, industries, and companies and the associated risks.

AI in the investment industry


AI could change the investment industry through things like enhanced stock picking, portfolio management, and customer experience (i.e. through personalised advice). It could make investment processes more efficient, accurate, and customer-centric. Within portfolios, some argue active managers (who try and beat the market) could have an edge by identifying overlooked details that AI might miss. For example, thematic investing, which focuses on long-term trends, may seem straightforward but is incredibly challenging (although everyone’s a genius at it with hindsight!). To be successful at it, managers must identify undervalued themes, profit from them as they are repriced, and exit at the right time—tasks that require nuanced judgment which AI may struggle to replicate. This raises the question of whether AI can fully replace human expertise in active management.

Risks


Growing capabilities of Artificial Intelligence (AI) tools present opportunities as well as risks. Such external risks, expected to increase in frequency and sophistication, include the use of AI tools to spread misinformation and perform automated cyber-attacks. This is where rigorous risk management frameworks are key in protecting businesses and therefore investors’ portfolios. AI presents emerging risks and issues which all businesses within the investment industry will have to tackle as AI further embeds itself into day to day processes.

Forward looking perspectives


AI is reshaping decision-making by improving data efficiency. Future AI advancements may focus on precision and quality, potentially reducing human involvement as data grows too vast to manage manually. Our view is that AI may auto-source and evaluate data, but the investment process should retain a "Human-in-the-Loop" approach. This ensures human oversight to mitigate biases, validate models, and guide AI in tasks requiring judgment or complex decisions. Precision is best achieved through collaborative feedback between human intelligence and artificial intelligence.

The Noise

The Nuance


As we enter the new year, the UK marks a historic milestone: its first year without coal-powered energy, making it the first major G7 economy to achieve this feat. This accomplishment highlights the ongoing energy transition from fossil fuels to cleaner alternatives.

The UK's approach emphasises the importance of a gradual transition. In 2015, coal still accounted for 9% of the nation's electricity supply. An immediate ban on coal power generation at that time would have caused significant economic disruption and jeopardised energy security. The phased approach allowed for a smoother adjustment balancing environmental goals with practical considerations.

This milestone also shows that climate targets are achievable. In 2015, the UK government set an ambitious goal of phasing out coal by 2025, promising that “coal-fired electricity generation will end by 2025.” Remarkably, this target was not only met but achieved ahead of schedule in September 2024 with the closure of the Ratcliffe-on-Soar Power Station in the Midlands.

However, the UK continues to rely on fossil fuels, with natural gas currently contributing 28% to power generation for the nation's energy supply, according to the National Grid (data as of 03/01/2025). This dependency underscores the need for continued investment in renewable energy infrastructure and innovation to meet climate targets and stay ‘Paris aligned’ with a 1.5-degree warming target.

In a global context where climate targets are often missed and warming temperatures surpass critical thresholds, the UK's coal phase-out is a positive step worth celebrating. It provides a hopeful narrative for the year ahead, serving as a reminder that meaningful progress on climate action is possible with the right strategies and commitments.


The Niche
A fun financial markets fact of the week


Did you know that stock markets have existed for an impressive 423 years? The Amsterdam Stock Exchange, established in 1602, is widely regarded as the world’s oldest official modern stock exchange. Created in response to the ‘Nederlandse Oost-Indische’ which issued shares to raise capital for its vast trading operations. Though now it has merged with the Brussels and Paris stock markets to form the ‘Euronext’ exchange. This historical evolution reflects how markets have continually adapted and expanded over the centuries, shaping the global financial landscape we know today.

Disclaimer

All investment views are presented for information only and are not a personal recommendation to buy or sell. Past performance is not a reliable indicator of future returns, investing involves risk and the value of investments, and the income from them, may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.

Any views expressed are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness by atomos. Any expressions of opinion are subject to change without notice.

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