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The Role of AI in Portfolio Building

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The Role of AI in Portfolio Building

The Role of AI in Portfolio Building: Striking the Balance

By:  Kevin Battista

In the modern world of finance, the integration of technology and artificial intelligence has brought about a paradigm shift in portfolio management. We believe at the heart of this transformation lies the portfolio optimizer; a key tool used to construct investment portfolios based on various inputs. However, the question often arises: can we truly call it “AI” when human input plays a significant role in the decision-making process? Let’s delve into this intriguing blend of human experience and machine intelligence.

The Power of Portfolio Optimizers

Before we tackle the AI-human dynamic, it’s essential to understand the significance of portfolio optimizers. These sophisticated algorithms, commonly found in financial platforms like Bloomberg, empower investment professionals to create portfolios that align with specific objectives.

For instance, if an investor aims to minimize risk, they can instruct the optimizer to prioritize assets with historically low standard deviations of returns. On the other hand, those seeking income may instruct the optimizer to emphasize dividend yields and free cash flow growth. The optimizer takes these instructions and calculates weightings for each asset in the portfolio to achieve the objective from the inputs applied.

Is It AI or Not?

The question of whether this process can be called “AI” is a matter of perspective. Here are a few points to consider:

  1. AI Enhancement: Portfolio optimizers are unquestionably powered by AI algorithms. They utilize complex mathematical models to process vast amounts of historical data, analyze various factors, and seek to optimize portfolio weightings accordingly.
  2. Human Input: While the optimizer itself is AI-driven, the critical element is the human input. Investors, portfolio managers, and financial analysts provide the optimizer with specific instructions, objectives, and constraints. This human guidance shapes the outcome of the optimization process.
  3. Collaboration: It’s best to view portfolio optimization as a symbiotic relationship between humans and AI. The optimizer augments human decision-making capabilities by swiftly processing data and suggesting weightings based on predefined goals.
  4. Continuous Monitoring: Portfolio management doesn’t end with optimization. Humans are responsible for continually monitoring the portfolio’s performance, making necessary adjustments, and adapting to changing market conditions.

The Real Value: Human-AI Synergy

In the end, the real value lies in the synergy between AI-driven portfolio optimizers and human expertise. The AI component streamlines the decision-making process, enhances data analysis, and provides insights that humans might overlook. However, it’s human judgment, experience, and strategic thinking that set the goals, interpret the results, and navigate the ever-evolving financial landscape.

So, is it accurate to call this process AI-driven portfolio construction? Absolutely. But it’s important to recognize that the term “AI” in this context represents a harmonious partnership between technology and human intelligence, rather than a complete replacement of the latter. In the world of finance, it’s the combination of both that may lead to successful portfolio outcomes.

 

This document does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein, any risks associated therewith and any related legal, tax, accounting or other material considerations. To the extent that the reader has any questions regarding the applicability of any specific issue discussed above to their specific portfolio or situation, prospective investors are encouraged to contact supports@helloartha.com or consult with a professional advisor.

Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events, results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Nothing contained herein may be relied upon as a guarantee, promise, assurance or a representation as to the future.

All investments in securities include a risk of losing your principal and any unrealized profits.  Stock markets and bond markets may fluctuate substantially over time. In addition, as recent global and domestic economic events have indicated, markets can be very volatile. Therefore, we cannot guarantee any level of performance or that you will not experience a loss in a portfolio.  Please consult with a professional advisor before investing.

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Kevin Battista

VP of Product

Kevin leads Artha’s product, design, and SCRUM teams and his responsibilities include overseeing the strategic vision of Artha, the product roadmap, the end-to-end user experience, as well as the delivery cycles. With 12+ years of experience in product development and product design, Kevin has developed and implemented creative solutions that have solved countless problems within the FinTech community. He’s built software that’s used in the largest financial institutions in the U.S. and has successfully led teams through the product development lifecycle, resulting in multiple acquisitions and exits. Kevin has a B.S. in Finance and Information Technology from Virginia Tech and an MBA from Wake Forest University.

Natallia Sakharuk

VP of Quality Assurance

Natallia is the VP of Quality Assurance at Artha who leads with a commitment to elevating product and service quality across the organization. She possesses a deep understanding of quality methodologies, industry standards, and is recognized for her strategic vision, a data-driven approach to decision-making, and her unwavering dedication to upholding the highest standards of quality in all aspects of the business. With over 8 years of dynamic experience in QA, she successfully orchestrated quality initiatives in FinTech and Corporate Real Estate projects resulting in enhanced product reliability, reduced defects, and increased customer satisfaction. Natallia holds a B.S. in Economics & Logistics from Belarusian State Economic University, a B.A. in Foreign Language from Academy of Postgraduate Education, is certified by ISTQB (International Software Testing Qualifications Board), and she has continued to stay at the forefront of industry advancements by attending workshops, seminars, and conferences.

As a trusted leader, Natallia is poised to drive Artha’s quality assurance initiatives to new heights, ensuring a lasting impact on both customer satisfaction and business growth.

Alexandre Junges

VP of Engineering

Alexandre leads Artha’s development team, collaborating closely with developers and software engineers to architect and construct a robust application that aligns with business requirements, prioritizing security, performance, and scalability. A fervent technology enthusiast, Alexandre is committed to enriching lives through innovative solutions. With over a decade of experience in application development spanning diverse industries, he holds a B. Tech. in Analysis and Systems Development from Unisinos, a Project Specialization from UFRGS (both universities in Brazil), and he is a Certified Microsoft Professional.

Justin Lowry

President And Chief Investment Officer

Justin Lowry is the President and Chief Investment Officer of Global Beta Advisors. Justin’s responsibilities include the oversight of investment activity, market research, and product development at Global Beta Advisors. Justin joined the firm as an executive member upon its foundation. Prior to working at Global Beta Advisors, Justin worked at Oppenheimer Funds as Head of Research and Product Development for its Beta Solutions exchange-traded fund business from 2015 until 2017, which at the time, held over $2 billion in assets in the Revenue Shares ETF suite. One of the cornerstone ETFs in the business, RDIV, won the ETF Innovation “Smart Beta ETF of the Year” award (Click here for more information about the award, contestants, and its qualifications). From 2010 until 2015, Justin served as CIO for Index Management Solutions, a subsidiary of VTL Associates, where he served as a subadvisor, providing custom portfolio solutions, portfolio management, and trading services to many ETF issuers that summed to $2 billion in management. Those funds included the Revenue Shares ETFs, KraneShares China ETFs, and several ETF issuers who launched their funds through Exchange Traded Concepts. Prior to the inception of Index Management Solutions, Justin worked as an analyst at VTL Associates since 2008. Justin earned his B.S. in Business Management from Saint Joseph’s University.

Vince Lowry

CHAIRMAN

With over 40 years of experience in the financial industry, Vince Lowry has built a distinguished career as an Investment Advisor. He began his journey in 1984 at Shearson Lehman, where he quickly established himself as a leader in the field. Over the next two decades, he grew his investment business to an impressive $20 billion in assets under management (AUM). Vince attributes this success to using modern portfolio theories as he was an early adopter of global asset allocation for diversification as well as utilizing advances being offered by technology.

In 2004, Vince and his team departed from Smith Barney Citigroup to launch their own Registered Investment Advisor (RIA) firm, VTL Associates. Over the next 11 years, they continued managing client assets while also developing an ETF family of funds known as RevenueShares.

One of Vince’s most notable achievements came in 2009 during the financial crisis. As the Investment Advisor to the Pennsylvania Treasury, he recognized an opportunity amid market turmoil. He advised the Treasury to leverage the New York Federal Reserve’s TALF program, investing in CMOs, ABS, and other distressed yet highly rated fixed-income securities. This strategic move resulted in a remarkable $3 billion gain for the Pennsylvania Treasury within just nine months.

In 2015, Vince and his team sold VTL Associates to Oppenheimer Funds, a subsidiary of MassMutual. Over the next two years, they played a key role in expanding Oppenheimer Funds’ ETF business. By August 2017, after fulfilling their obligations under the acquisition agreement, Vince and his team set out on a new path. Recognizing the agility of smaller firms, who are better positioned to explore and create creative strategies by embracing the rapid changes in the world of technology, they launched a new venture focused on delivering investment advice through innovative technology-driven solutions.

Vince Lowry continues to be a thought leader in the industry, leveraging decades of expertise to navigate the evolving financial landscape and drive meaningful results for his clients.