universe. Though this fund uses
technology tools to identify stocks,
it is not a quant fund looking at
arbitrage opportunities. It is a
long-only fund, which seeks to hold
securities for a long period of time.
Explains Vishal Kapoor, CEO of
IDFC AMC: “AI has picked stocks
that the market was negative on
and we got out of the stocks when
majority of the market was positive
on them. The process of stock
selection is completely different.”
So how is AI different when
it comes to stock selection
compared to a human being?
While selecting stocks, AI not only
uses fundamental and technical
research tools but also relies on
alternative data tools, such as,
social media chatter, company and
industry updates from across the
world, and satellite feeds to arrive
at and predict returns that will
determine the selection. Under
the traditional method, a fund
manager would utilise his/her
expertise and industry networks to
pick a stock and predict its returns
after building in the upside and
downside. Naturally, this wouldcome with human bias.
While that format may have
worked in the past, it doesn’t
necessarily work in the digital age
when companies don’t grow in a
linear fashion. Also, today multiple
factors drive stock markets and
stocks, not all of them easy for
the human mind to interpret. For
instance, a fund manager would
have to talk to several people to
arrive at consumer sentiment beforeTRADITIONAL STOCK
PICKING METHOD
Requires industry and company
knowledge
Need access to company
management and other networks to
gather information
‘Kicks tyres’ physically to model and
predict returns
Developed for the industrial age
when companies grew in a linear
fashion
Transactions were done physically
Easier to correlate company’s
fundamentals and stock marketsProduct Structure Discretionary PMS
Benchmark BSE 200
Minimum Investment `1 crore
Set Up Fees Up to 2% payable quarterly
Management Fees 20% of returns in excess of 12% with high watermark
Early Exit Fees 1% if redeemed within one year of investment
Administrative Fees 0.30% per annum
Minimum Additional
Subscription`25 lakh (at cost)Liquidity `25 lakh (at value)
Minimum Redemption `25 lakh (at value)
Minimum Balance `1 crore at cost
Operational Process Managed on an individual client basis
GST & other levies charged above the fee ratesBIG DATA AND ARTIfICIAL
INTELLIGENCE METHODS
Collect large amounts of data from
multiple sources in varying frequencies
Analyse the data for relevance in
generating alpha
Designed for the digital age as
companies don’t follow a linear path
anymore
Exponential growth in the generation
of commercial and social data
Transactions are done digitally and can
be tracked real-time
Multiple factors drive stock market
performance and stocksforecasting retail or auto sales. But
with technology, this can be done by
tracking the mood on social media,
and footfalls at malls can be tracked
using sensors. In India, IDFC AMC
has been a pioneer in deploying
tech tools for stock selection, but
some hedge funds globally have
been using these tools since the
mid-90s.
Thanks to the proliferation
of mobile data in India over the
last two years, a vast quantity of
data is generated in India today.
The government, too, is putting
up a lot of data online for users
to access. IDFC AMC seeks to
marry the understanding of a fund
manager with that of machine
learning to enhance the stock
picking capabilities. Even though
the stock recommendations would
be based on technology tools, the
fund manager would have the final
discretion on investment.
The end objective of this fund is
clear: superior risk-adjusted returns.
However, this fund is not for the
masses yet. Given that it is new,
IDFC AMC is offering it under its
discretionary portfolio management
scheme and the minimum ticket
size for the product is `1 crore.
[email protected]PRODUCT NEW EQUITY PORTfOLIO
http://www.outlookmoney.com March 2018 Outlook Money 55