The investment landscape is changing at an unprecedented rate. Investor preferences are evolving. Technological advances are allowing investors to build portfolios in entirely new ways. Here are the key trends currently impacting the world of investing.
1. Artificial Intelligence - the foundation for the next generation of robo-advisors
Artificial intelligence is fundamentally changing the decision-making process in financial investment and equity trading. In the last 5 years, the number of queries for ‘artificial intelligence in stock trading’ has grown by 2,400%. Raw models of artificial intelligence have been around for over a decade. The first robo-advisor, Betterment, was launched in 2008. To this day, many robo-advisors use automation and create passive portfolios based on modern portfolio theory. But a new generation of robo-advisors looms on the horizon.
The next generation of robo-advisors will be able to model various potential economic changes and predict the best investment strategies for those scenarios. Artificial intelligence is finding many applications in the financial sector. Other AI-powered robo-advisors can develop new trading strategies in milliseconds. JPMorgan Chase is one company that is investing heavily in artificial intelligence technology.
The company is currently developing IndexGPT, a generative AI platform that can customise investments based on user needs. The company has recently applied to register a trade mark for this platform. The platform is expected to be available within three years. JPMorgan Chase has been using artificial intelligence for the past few years and expects the technology to generate 1 billion dollars in revenue this year. As robo-advisor technology advances, adoption is accelerating. By 2025, total assets in the robo-advisor market are projected to exceed 1.8 trillion dollars. This is expected to continue growing at a CAGR of nearly 8% through 2027 to reach 2.27 billion dollars.
2. Quant funds have made significant progress
Quant funds are a particular area where AI is being used for investment purposes. Since 2019, search interest in the query ‘quant funds’ has increased by more than 4,900%. Unlike investments that are at least partially managed by fund managers, quant funds are entirely driven by software models and digital data. Quant fund algorithms are increasingly controlled by artificial intelligence. In the United States, quant funds account for approximately 29% of the total hedge fund market. At the end of March 2023, they were worth over 1.13 trillion dollars.
3. Environmental, social and corporate governance
Environmental, social and governance (ESG) investing has conquered the financial world in recent years. According to Morningstar, nearly 70% of asset owners believe ESG factors have become more important over the past five years. In 2021, ESG funds had 4.5 trillion in assets under management in the U.S., but that number is expected to grow to 10.5 trillion dollars by 2026.
PricewaterhouseCoopers forecasts that ESG assets will account for a fifth of all assets by 2026. The US accounts for about 11% of ESG fund assets, while Europe accounts for 83% of such funds. Research shows that ESG portfolios have delivered above-average returns over the past five years. Specifically, the excess return of ESG portfolios in Europe has been 1.59% per annum. Much of the growth in this area has come from new ESG ETFs. Over the past five years, interest in ‘ESG ETFs’ has grown by 444%. By the end of 2022, ESG ETFs will have more than 97 billion dollars in assets.
Conclusion
In conclusion, the investment landscape is undergoing a significant transformation driven by new technologies and changing investor preferences. Artificial intelligence is taking robo-advisors to the next level by offering more accurate and adaptive strategies. Quant funds continue to show high potential, relying entirely on software models. At the same time, a growing interest in environmental, social and governance (ESG) aspects shows that investors increasingly value sustainability and social responsibility. These key trends are driving investment trends for 2025, shaping new opportunities and challenges for market participants.
Met Sorrows
Legal expert with 30 years of experience.