According to Turing Technology, a fundamental rethinking of active investment management is underway that is destined to put several trillion dollars in assets in motion. The pending upheaval is based on enabling AI and Machine Learning technology; the platform driving the change is Ensemble Active Management, or EAM. EAM is not a stock-picking algorithm or a strategy, instead it uses proven best practices of predictive analytics gleaned from dozens of other industries as a mathematical platform for building investment portfolios. There are literally millions of potential EAM Portfolios available.
According to Vadim Fishman, CEO and co-founder of Turing, “We know what the outcome will look like, as progress can only be slowed, never stopped. There are more than $10 trillion in actively managed investments that deserve better than status quo. EAM is the inevitable answer.”
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Turing’s forecast is supported by three critical pillars:Â affirmation from live performance data; market validation based on recent and pending market launches of EAM-based products; and the recent publication of a groundbreaking Research Paper that details how and why EAM structurally adds alpha.
Live Performance: there are currently more than 60 EAM strategies in live production, built by a dozen firms. In Turing’s latest industry-level performance report, the most striking data is rolling 12-month relative performance. With more than 4,000 unique 12-month datapoints, EAM Portfolios outperformed corresponding indexes 78% of the rolling periods, and had a success rate versus actively managed peer groups of 87%. Annual excess returns were equally strong, with an average annual excess return of 8.75% (875 basis points) versus indexes and 13.13% (1,313 basis points) versus actively managed peer groups.
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Alexey Panchekha, President and co-founder of Turing put these numbers into perspective. “The sample size is now too large to dismiss. EAM has operated live across standard markets, a bear market, and a record-breaking market recovery. EAM Portfolios currently reflect all 9 standard capitalization/style categories, plus multiple ESG options.” He added, “There is not another platform for investing that is beating passive indexes 50% of the time, let alone 78% of the time.”
Market Launches: EAM Portfolios are currently available as SMA’s to over 100,000 advisors and brokers through major platforms (e.g., Schwab and Envestnet) and firms, and is universally available as a Model Portfolio to advisors and institutional investors. EAM-based active ETFs have been publicly announced and are expected this summer. Multiple Structured Notes and Fixed Index Annuities launches are expected in calendar year 2021, with the first scheduled for this summer. EAM-based products targeting retirement accounts are in development. And some of the largest firms in the financial industry are either clients of Turing or in active discussions with Turing.
Validating Research: Â Earlier this year Enterprising Investor from CFA Institute published a Research Paper that details the investment and mathematical justification of EAM. Paul McCaffrey, the editor of Enterprising Investor, simply and concisely described the Paper as a “game changer.”
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