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China’s First AI Fund Learned From the Country’s Best Traders

By Bloomberg / Jul 25, 2019 09:37 AM / Business & Tech

Photo: IC Photo

Photo: IC Photo

China’s investors will soon be able to pick machines over humans when trying to profit in the world’s wildest major stock market.

Zheshang Fund Management Co., which manages $6.5 billion, plans to use about 300 investment models to analyze more than 3,000 Chinese stocks for what it says is the nation’s first artificial intelligence-based fund run purely on recommendations from its machines.

The “robots” initially learned from the nation’s best fund managers and analysts, and after about a year in training are ready to take them on when the fund opens to retail investors next month, according to Zha Xiaolei, head of Zheshang’s four-person AI investment team.

While a growing number of hedge funds globally including Bridgewater Associates and Man Group Plc have developed AI and machine learning strategies to gain an edge, the results so far have been mixed. Funds that incorporate AI into their decisions have lagged a broader hedge fund index since 2018, according to Eurekahedge. Making headway in a market famous for its unpredictable price swings, where mom-and-pop investors drive 80% of trades, won’t be easy.

“Globally AI strategy is at a very early stage, even though it may gain traction in the long run,” said Liu Shichen, a Shanghai-based analyst at Z-Ben Advisors, an asset-management research firm. Explaining and selling the concept of an AI fund to a retail audience in China may be a tough task, he said.

To build a model that can adapt to China, Zheshang’s machines first analyzed the strategies of more than 80 of the nation’s best-performing fund managers, drawing from public disclosures of their holdings. They were also fed stock recommendations from 500 star analysts and industry experts, and investment ideas from 200 chat groups.

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