'AI will reduce dependency on 'star' fund managers'

How is your team viewing the current market valuations and preparing for possible corrections?

Markets are unpredictable, as always, and even in stable conditions, inherent risks in the background can arise at any time and impact performance. Thus, the answer lies in being alert, flexible and nimble when taking corrective action.

At Shriram AMC, we have adopted a quantamental approach towards investment management - integrating quantitative techniques with fundamental analysis. This helps analyse a large number of data points, giving the ability to respond faster to a changing environment while reducing biases and retaining quality. This allows us to respond appropriately whether the market faces a correction or a resurgence.

Are index and factor-based passive funds a fad or a lasting investment strategy?

Index and factor-based passive funds are here to stay, given their advantages of low expense ratio and alignment to a predefined index. Conversely, the lower expense ratiosalso translate to a lower incentive for distributors to promote these. It then becomes incumbent on investors to be aware of their own risk profiles and financial goals, along with a proper understanding of the passive products when allocating funds.

Also, the commoditised nature of the product does not allow manufacturers to charge higher fees; hence, profitability in passives will only come with scale. Innovation in
product design and meeting specific customer need gaps will be the way forward for passives to continue to gain volume and value share versus actives.

Will AI impact your business? How and why?

AI will impact two core areas of asset management: alpha generation and productivity. AI can help build more robust and adaptive portfolios optimised to generate risk-adjusted alpha. In a VUCA (volatility, uncertainty, complexity and ambiguity) world, AI can crunch large amounts of data and throw up insights which would otherwise escape the analyst, improving response times. AI will allow analysts and fund managers to manage more funds effectively and reduce dependency on 'star' fund managers.

AI can also drive productivity in back-office automation, suspicious transaction monitoring, personalised customer engagement, content creation, and software development.

Rapid-fire questions

• If your fund house had a superpower for investors, what would it be?
  Quantamental investing.
  
• The biggest mutual fund myth you'd debunk.
  Mutual funds are risky (risk not to be confused with volatility).
  
• An unconventional asset class you'd add to your portfolio.
  Art.
  
• A Bollywood movie that best represents the mutual fund industry today.
  Guru.

This article was originally published on November 06, 2024.