Summary
With a net worth of approximately $100 billion, Buffett attributes much of his success to the foundational investment methods learned while studying under Benjamin Graham, the father of value investing.
With so much historical success, why has value investing lagged growth over the last decade?
Through collaboration between Voya and WisdomTree, the next evolution of the value fund is now made accessible to the public markets.
Sezeryadigar/E+ via Getty Images By Blake Heimann
Warren Buffett epitomizes the notion of value investing . With a net worth of approximately $100 billion, he attributes much of his success to the foundational investment methods learned while studying under Benjamin Graham, the “father of value investing.” With methodologies proven to stand the test of time, value investing has sheltered the storm of the 1970s inflation , the burst of the tech bubble of the early 2000s, the great financial crises a couple of years later, and most recently, the coronavirus pandemic.
With so much historical success, why has value investing lagged growth over the last decade? Why has Buffett been so successful, yet the greater population of value investors struggled to outperform? The next evolution of value investing may hold the answer. By augmenting human intelligence with machine intelligence, a level of expertise like that of Buffett and Graham may be repeated or exceeded through the revolutionary technology of artificial intelligence (AI). AI toppled the chess grandmaster Garry Kasparov in 1997 and has come to surpass human capabilities in a plethora of tasks in the 20 years since. Time has come for AI to compete with the great financiers of our time. Introducing the WisdomTree AI Enhanced Value Family
Through collaboration between Voya and WisdomTree, the next evolution of the value fund is now made accessible to the public markets.
The WisdomTree U.S. AI Enhanced Value Fund ( AIVL ) and the WisdomTree International AI Enhanced Value Fund (NYSEARCA: AIVI ) 1 seek to offer uncorrelated returns streams from the value universe by leveraging the expertise of the Voya Equity Machine Intelligence (EMI) team and their fundamentally driven machine learning approach.
The EMI model approaches value investing dynamically to avoid narrow style biases that may be out of favor, while still providing value exposure across equities. The strategy seeks to capitalize on short- and long-term investment opportunities-in an effort to deliver the virtue of patience and agility, acting quickly and decisively when opportunities arise.
Collaborating across WisdomTree, Voya’s EMI team and the greater Voya Quantitative Equities group, the WisdomTree Enhanced Value Family has the support of a diverse team of individuals with the financial and technical expertise to offer a world-class investment product. The Strategy
Each Fund’s strategy consists of five stages with varying degrees of involvement between human and machine-something the EMI team calls ‘human in the loop’.
This concept emphasizes that the strategy not only is driven by AI, but also has the proper human intervention and oversight to seek to ensure robust security selection and risk management. The Investment Process
The first step in the process consists of aggregating 10,000+ data points for each company over a 20-year history. Then, these data points are ‘feature engineered’ by human experts to provide a more insightful view of the company versus its peers, the entire stock universe or its own historical characteristics.
The result of this step is approximately 250 features spanning ESG , company financials, macro indicators, and company sentiment. Trained on 20 years of these historical features, the virtual analysts (the true AI) identify companies for inclusion in the portfolio based on learned patterns.
But not all are automatically bought-these initial selections are passed on to virtual traders that focus on shorter-term indicators, identifying proper entry and exit timing, as well as any risk events that may necessitate a reduced weight. An example of this might be negative news sentiment prior to earnings, where virtual traders may de-risk prior to earnings announcements, then add back to the position after, if the virtual analyst still ‘likes’ the company medium to long term.
After being deemed a good and timely investment by both the virtual analyst and virtual traders, these proposed trades are passed on to the virtual and human portfolio managers for review before being executed by the human portfolio management and trading team at Voya. The Strategy in Action
The virtual traders use machine learning to identify dynamic ‘rules’ and patterns for defining value at the company level and use this information for security selection.
The hypothetical example below demonstrates the logic derived […]
source The Evolution Of Value Investing: From Buffett To Intelligent Machines
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