Across a number of active stock funds with a combined $13 billion under management, Vanguard Group, a well-known asset manager noted for its conventional investments philosophy and reluctance to adopt emerging technologies like crptocurrency, has been covertly utilizing machine learning.
About a year ago, as the ChatGPT mania engulfed global markets, the second largest asset manager in the world integrated Artificial Intelligence (AI) into four factor-based fund.
The hypothesis is that systematic tactics will become more adaptable to shifting market and economic situations with the aid of new linguistic and data analysis skills.
The $7.8 billion Vanguard Group Strategic Equity fund surpassed its benchmark and most peers in 2023, the $1.5 billion Vanguard Strategic Small-Cap Equity Fund returned 12%, and the $491 million Vanguard Market Neutral Fund showed positive early results for Vanguard Group.
Vanguard’s Quantitative Equity Group is one of the groups that contribute to the strategy of the fourth fund.
While maintaining their fundamental approaches to factor investing, the four methods have integrated trading insights obtained from machine learning.
The models incorporate a new set of market and economic variables while using the same inputs.
It can produce more complex stock predictions with an architecture called neural networks.
In 2018, Vanguard Group started experimenting with AI.
First, it focused on text processing, then it investigated potential applications for AI in quant strategies.
CEO Tim Buckley predicted last year at a conference that asset management will undergo a revolution thanks to generative Artificial Intelligence (AI), the field typified by ChatGPT.
There are more companies using AI in factor strategies than Vanguard Group.
Jason Hsu, a co-founder of Research Affiliates, used a few parameters to parse about 200 trading signals using Artificial Intelligence (AI) at Rayliant Global Advisors.
