AI-driven investment manager Quantumrock’s flagship strategy, the Volatility Special Opportunities Program (VSOP), closed 2020 up 30.93 per cent, its best year of performance since 2016.
After November’s momentum change, stocks continued their rally in December due to the Covid-19 vaccine releases and reliefs, and the US Congress making progress on the new fiscal stimulus bill. The S&P 500 closed the month of December up 3.2 per cent, while Treasuries remained flat.
In 2020, both the alpha generating overlay as well as the beta portfolio of VSOP performed exceptionally well. The overlay contributed +23.62 per cent and the beta portfolio (S&P 500 futures and US bond futures) had a contribution of +7.31 per cent. This reflected the strength of the product during a time of sharp market volatility.
Looking forward to 2021, Stefan Tittel, CEO, Quantumrock, says: “2020 has seen many specialised core Artificial Intelligence (AI) investment managers coming to the fore as investors look to protect downside risks and seek crisis alpha capabilities. As part of this, we have also witnessed a growing appetite for rule-based investment decisions (ie, systematic strategies), rather than discretionary, and in this context also a greater openness towards AI-driven approaches.
“Developments in natural language processing, in particular models based on transformers, are increasingly helping systematic investors to capture and process multiple sources of data (textual, image and audio) with a higher degree of automation by broadening the reach and improving efficiency. Meanwhile, white-boxing machine learning models are helping to enhance human understanding of algorithms through transparency and accountability.
“Machines have access to an infinite number of trading opportunities, so models are constantly adapting to market trends, making them more dynamic.
“2021 will likely be another year of increased volatility. Machines will continue to be on the lookout for opportunities throughout all points of the market cycle. Uncertainty is the most significant challenge facing investors. With AI, this uncertainty is handed to an algorithm where the predictions and timings are completely automated. Emotional and cognitive biases can be removed over time, making AI and machine learning a much better solution for the long and short-term.”
