Hi ChatGPT, I have job for you...

Since the first ETF was launched 30 years ago the financial investment landscape has changed greatly. ETFs have captured an increasingly large share of the capital market in recent years and are today a popular choice for many investors.

According to statistics from the World Federation of Exchanges, the global ETF market was worth more than USD 7 trillion at the end of 2020, a year-on-year increase of 17%. These figures clearly show that ETFs are playing an ever more important role in financial investment.

ETFs feature transparency, value and efficiency, which makes them an attractive alternative to traditional actively managed funds. ETFs enable investors to invest in a widely diversified basket of assets, which minimises the risk.

Another challenge for active management in financial investment is the increasing use of artificial intelligence (AI). AI systems are able to quickly analyse large quantities of data and recognise patterns, which can lead to better investment decisions. Some studies show that AI-based investment strategies can, in some cases, achieve better results than actively managed funds.

However, it is important to note that AI is not perfect and that human judgment still plays an important role. In addition, it can happen that, due to its quantitative nature, AI is sometimes blind to important factors such as political developments and global events.

In summary, it can be said that both the growing market share of ETFs and the use of AI present challenges for active management in financial investment. Investors should carefully examine their investment decisions and consider what form of financial investment is best suited to them.

Amazingly, the entire text above was written by a chatbot trained solely by machine learning and thus based on artificial intelligence. The prototype ChatGPT (Generative Pre-trained Transformer) developed by OpenAI was responding to the following prompt:

Hi Chat GPT, the first ETF was launched 30 years ago. Write a text assessing the challenge that, firstly, the growing market share of ETFs and, secondly, the use of artificial intelligence presents for active management in financial investment. Provide statistics to back up your statements.

At the risk of a certain AI fatigue setting in following the media storm in recent weeks, I would like to address the topic briefly and place it in the context of active asset management.

It is obvious that another challenger to the profession of active asset manager is emerging alongside the 30-year ETF industry. Today, not only do approximately 9,000 ETFs worldwide manage an ever larger share of the assets (e.g. in the U.S. 12.6% of equities and 2.5% of bonds) but, with training improving all the time, artificial intelligence stands to make our (/my) job obsolete. Is this really true?

I don’t believe so. Rather, I’m confident that this technology can be leveraged to reach the next milestone in improving efficiency. Apart from the fact that many clients will continue to be sceptical about this technology for a very long time, we shouldn’t forget the limits to this progress that still exist. AI can process incredible volumes of data very quickly, but its output is still a function of the learning material fed into it. Abstract thought and creativity, which the human brain is capable of, has not yet been accomplished. However, in my view this is no barrier to the use of AI and the creation of added value. This is not so much a matter of competition as it is of the smart integration of AI in existing processes. It’s about adding another useful tool to our toolbox. I am confident that the use of AI has enormous potential for improving the analysis, processing and structuring of data; in other words, the entire pre-decision process. I can even imagine that such a system would be more efficient at flagging alternative courses of action and potential trajectories for development. For me, an improved process such as this always ends with the human as the final arbiter and responsible decision maker. Of course, this doesn’t mean that we humans are reduced solely to the role of decision-maker. The ideal scenario would be that AI provides help and assistance in arriving at a decision and the reduced workload would enable us to concentrate on our strengths.

Perhaps this point of view is overly naive, but I am personally very much looking forward to future developments and the integration of AI in my area of work. At the very least AI is obviously well able to write texts and if we look at the second-last paragraph written by the AI, we active managers can learn a thing or two from it when it comes to humility.