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Investment community failing to recognise AI opportunites suggests Sanlam fund manager

Nicholas Earl, 13/05/2021

The investment community does not fully understand the transformative effects of artificial intelligence (AI) on the economy and wider society, argues Chris Ford, manager of Sanlam’s Artificial Intelligence Fund.

Mr Ford believes that investors are too passive when it comes to noticing the advancements of AI and its future potential. As a consequence, they are often too late to spot exciting investment possibilites. 

Citing an example from the North American consumer finance sector, he observed that investors remained widely sceptical of AI-based lending platform Upstart despite a reported 100 percent increase on its quarterly numbers and a following 120 percent rise in its stock price.

The fund manager said: “Critically, the investment community just doesn't understand what's going on here. In many cases the investment community, particularly the sell side and research community, doesn't even have the vocabulary to understand what's happening under its own nose."

Following its reported results, Upstart has since upped its guidance from $550 million to $600 million in its full-year review, but Mr Ford believes investors are only just starting to recognise its success. He compared this institutional lateness to the inability of investors to spot the rise of now household names like Netflix and Tesla.

He added: “Of course, today they are now falling over themselves to take guidance up. It's just another example of a characteristic we've seen time after time over the course of the last few years.”

Mr Ford believed the success of Upstart reflected the performance improvements AI could provide to businesses and consequently the improvements it could provide to investor’s returns, if they were more engaged in the market.

Maintaining his focus on North America, he noted that its healthcare sector was a key early adopter of AI and is consequently reaping the benefits. He pointed out that United Healthcare, the country’s largest healthcare business which operates as an insurer, owner and operator of medical facilities, has invested vast sums in its AI platform over the past last decade. It has consequently found itself with a significant advantage over its competitors that are trying to play catch up.

Mr Ford explained: “Not only are they the largest participant in that market, they're actually outgrowing the overall market which is a fairly extraordinary place to find yourself. This is something which is not typical in large, mature consolidated businesses elsewhere.”

In his view, AI had provided United Healthcare with an economic moat around its business, enhancing its competitive positioning.

Reflecting on how this influenced the strategy of his fund, Mr Ford outlined that trailblazing AI-favouring firms across every investment sector and region were open to investment. Utilising AI was a feature he could observe in businesses when selecting holdings.

He said: “It gives us the vapour trail that we can follow to find those companies which we think are doing really very interesting things to disrupt organisations.”

The exciting factor for Mr Ford was his view that the possibilities of AI remain ahead for investors, meaning they can rectify their hesitancy. He considered last year to be a real breakthrough for AI. Not only could it be serviced to allocate Netflix recommendations and provide information to navigation apps, it had also been used to in the data management of the Covid-19 vaccine programmes. The speed of the vaccine development was assisted by AI-driven data science, which prior to the pandemic, pharmaceutical companies had treated with scepticism.

He concluded: “It's really beginning to show its mettle in respect of the ability for AI to really transform the problem solving in a number of different industries around the world.2020 was a very important year for AI, demonstrating tangibly what it can actually do.

Chris Ford was speaking at the Sanlam Investment ‘Breakfast at Home’ presentation, alongside Tom Wells, manager of the Global Inflation Linked Bond fundMike Pinggera, manager of the Real Assets fund, and Tom Caroll, head of asset management. 

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