In an age dominated by AI innovations that blur the lines between reality and generative fiction, autonomous investing seems like the logical next frontier. Here, Nico Katzke, Head of Portfolio Solutions at Satrix* explores which parts of investing are likely to be impacted by AI – and (spoiler alert), the impact may not be what you expect. He unpacks this by looking at the main tools investors use to manage their funds.

Advisory Space

Investing is – and should be – a highly subjective exercise. Risk and return preferences are linked to one’s investment horizon, risk appetite and liquidity needs. If you’re investing for 12 months with a high chance you’ll need the money sooner, advice is simple: keep it safe and liquid. If you’re investing for 10+ years with little likelihood of needing the funds, your biggest risk is not taking enough risk.

Tax considerations matter too, as does the emotional challenge of staying invested – this is where advisers can be worth their weight in gold.

AI can, in theory, offer helpful generic investment advice – but only if prompted precisely and fed the right context. Robo-advisers haven’t seen the uptake many expected, and for good reason: advice is a deeply personal, human process. It often requires empathy, flexibility, and nuance; things AI doesn’t yet do well.

Investment Management

AI will certainly influence investment management but perhaps not in the ways we expect. Index investing (rules-based by nature) is a good example. Vanilla index rules are fixed. Stock weights in, say, the S&P 500 or JSE Top 40 are based on market cap. Since no discretionary decisions are made, vanilla indexation won’t be directly impacted by AI.

Instead, the impact will be indirect. As AI and machine learning make traded prices more efficient, index weights better reflect available information – which in turn makes it harder for active managers to find price inefficiencies. Opportunities will exist, but consistent outperformance will become scarcer.

Where AI might have more direct impact is in non-vanilla indexation – where rule design is more flexible. In the US, we’ve seen a proliferation of strategies with active design features. Locally, the Satrix Global Factor Enhanced Index uses machine learning to adapt weights based on stock and sector sentiment, risk regimes and other dynamic factors. This allows for unemotional, data-driven weighting using up-to-date information.

Criticisms like overfitting (great on paper, weak in future performance) and data integrity (garbage in, garbage out) apply to automated strategies – but humans aren’t immune to these either. If anything, AI and humans may end up managing side by side: machines offering efficiency and consistency, humans providing insight and emotional intelligence.

We believe vanilla passive (broad, low-cost exposure), non-vanilla indexation (intelligent rule-based exposure), and active management will all have roles in a more complex investment landscape. But more complexity doesn’t always mean better outcomes – and cost still matters. Ironically, the simplest low-cost passive strategy – where weights reflect an increasingly efficient market – may remain one of the most effective over time.

Discretionary Investing

AI is already a useful tool for managing discretionary portfolios. It’s great at summarising company info and aggregating macro views, helping novice investors make better decisions. DIY investing can be a great way to learn about markets, and some investors find it keeps them from fiddling with their long-term portfolios, which often benefit most from being left alone.

Having both a long-term strategy (with advice and cost-effective vehicles in place) and a DIY discretionary portfolio can be rewarding – both financially and educationally.

Final Thoughts

Given the rise of generative AI, it seems natural to believe the future of investing lies in automation. While data and tech will shape all areas of asset management, fully autonomous investing won’t be viable for most. AI should improve investor outcomes indirectly by reducing overall costs and making the industry more efficient; but hoping that it may disintermediate advisers or make managers redundant is likely to be a bridge too far.

*Satrix is a division of Sanlam Investment Management

Disclaimer

Satrix Managers (RF) (Pty) Ltd is an approved financial service provider in terms of the Financial Advisory and Intermediary Services Act, No 37 of 2002 (“FAIS”). The information above does not constitute financial advice in terms of FAIS. Consult your financial adviser before making an investment decision. While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSP, its shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaim all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information.

Satrix Managers (RF) (Pty) Ltd (Satrix) is a registered and approved Manager in Collective Investment Schemes in Securities. Collective investment schemes are generally medium- to long-term investments. With Unit Trusts and ETFs, the investor essentially owns a “proportionate share” (in proportion to the participatory interest held in the fund) of the underlying investments held by the fund. With Unit Trusts, the investor holds participatory units issued by the fund while in the case of an ETF, the participatory interest, while issued by the fund, comprises a listed security traded on the stock exchange. ETFs are index-tracking funds, registered as a Collective Investment and can be traded by any stockbroker on the stock exchange or via Investment Plans and online trading platforms. ETFs may incur additional costs due to being listed on the JSE. Past performance is not necessarily a guide to future performance and the value of investments / units may go up or down. A schedule of fees and charges, and maximum commissions are available on the Minimum Disclosure Document or upon request from the Manager. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Should the respective portfolio engage in scrip lending, the utility percentage and related counterparties can be viewed on the ETF Minimum Disclosure Document.  International investments or investments in foreign securities could be accompanied by additional risks such as potential constraints on liquidity and repatriation of funds, macroeconomic risk, political risk, foreign exchange risk, tax risk, settlement risk as well as potential limitations on the availability of market information.

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