'Warren in a Box' to pick stocks for first Nordic AI fund

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(Bloomberg) -- Finnish fund manager FIM is introducing the first investment fund in the Nordic region, where a self-learning algorithm gets to pick all the stocks.

Targeting returns of 3 percentage points above the MSCI World Index, the FIM Artificial Intelligence fund seeks to tease out patterns even an experienced fund manager may not detect, according to Chief Investment Officer Eelis Hein, who oversees 5.6 billion euros ($6.6 billion) in investments at FIM Asset Management.

“This is the next revolution across society, including in investing,” Hein said in an interview in Helsinki. “Investors are hugely interested.”

The “Warren in a box” technology, referring to famous value investor Warren Buffett, is a product of more than two years of work by Acatis Investment GmbH and NNaisense SA, a Lugano, Switzerland-based developer of artificial intelligence.

The algorithm picks 50 stocks from a pre-screened universe of 4,000 liquid, developed-market equities, each with a market capitalization of 1 billion euros or more. After running what Acatis calls the Warren algorithm, the AI applies a team-building algorithm, churning out a suitably diversified portfolio from the individual stock picks, Kevin Endler, portfolio manager at Acatis, said in a presentation in Helsinki.

The database contains fundamental data on 700 variables going back to 1986. The fund’s allocation takes place every six months and the actual trading is done by a human, FIM said. The fund has already attracted the interest of almost all Finnish pension insurers, Chief Executive Officer Teri Heilala said.

Stocks picked by the artificial intelligence technology include Canadian National Railway Co., Gildan Activewear Inc. and CDK Global Inc. In the Nordic region, it selected Svenska Cellulosa AB, Stora Enso Oyj and Loomis AB. However, the AI algorithm runs once more before the fund opens Nov. 20 and investments will be reallocated accordingly. FIM declined to give a target size for the open-ended fund.

Artificial intelligence technology differs from more traditional computer-run investment tools, such as quant software, in that it mimics the human brain’s capacity for learning. When new data comes in, the algorithm modifies its behavior and the patterns it’s trying to detect. While still niche business, the use of machine learning is becoming more widespread in investing, with money managers including Bridgewater Associates, Renaissance Technologies, Man Group Plc. and Two Sigma Investments using some form of the technology.

Acatis runs another AI-based investment fund developed with NNaisense, the German Acatis AI Global Equities. The fund started in June and is now down 1 percent. Technically, FIM is transforming its existing FIM Nordic fund, with 11.3 million euros in assets, into FIM AI. FIM Nordic had returned 145 percent since its inception in 2001. A typical mutual fund at the Helsinki-based company is managed by a team of one to three people.

“AI may detect non-linear patterns that traditional quantitative analysis is not able to identify,” Hein at FIM said. “It has no emotions: it hasn’t felt fear during a crash nor euphoria when markets are up.”

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