[Investment in the AI Era]② Can AI Be More Reliable Than a Human Fund Manager?

Long-Term Investment Yields Higher Returns Than KOSPI and Large-Cap Investors
Fount Analyzes Over 52,500 Scenarios to Defend Returns

Last year, among funds investing in value stocks in the global fund market, the NVQ Exchange-Traded Fund (ETF) recorded the highest returns. The most notable feature of this fund is that its management is handled by the AI of Craft Technologies, a domestic artificial intelligence (AI) startup. This means that when compared to leading global fund managers, the AI's management skills were superior.

With the global attention on ChatGPT, which was released at the end of last year, interest in AI-related investment products is growing in the financial market as well. Experts note that since AI-driven investment services have been introduced domestically for less than ten years, there will be some trial and error for the time being, but as stable performance is being demonstrated, the related market size is expected to expand further.

Increasing Subscribers Seeking RA... Discretionary Investment Amounts Rise

According to the Koscom Robo-Advisor (RA) testbed, as of January, the number of RA subscribers was 345,759, an increase of about 40,000 (13%) compared to 308,718 a year earlier. Compared to December of last year (338,179), it increased by about 8,000. The amount of RA subscription funds exceeded 1.81 trillion KRW.

Investment services available through RA in Korea include discretionary management, advisory, and free recommendations. Notably, the number of discretionary contract holders who fully entrust their assets to RA and the amount under management are increasing. As of January, the number of discretionary contract holders was 121,217, a 52% increase from 79,843 in January of the previous year. The contract amount also grew from 167 billion KRW to 202.3 billion KRW. In the past, the free recommendation function, where users received investment product suggestions matching their investment preferences via bank or securities firm apps, was a representative RA service. Recently, however, there has been an influx of investors seeking discretionary management services.

An RA industry insider explained, “Since the data only applies to companies that passed the testbed, not the entire RA market, the actual number of RA subscribers and subscription amounts are likely higher.” They added, “Due to the domestic and international stock market downturns, investors are experiencing fatigue from direct investment and seem to be switching to RA products that manage investments automatically.” According to the Korea Credit Information Services, the domestic financial AI market is expected to grow to 3.2 trillion KRW by 2026, with an annual growth rate of around 40%.

Returns Vary Greatly by Company and Investment Type

RA invests by selecting stock groups based on AI algorithms that reflect external environments and the company's management philosophy, provided by domestic advisory and discretionary service firms such as Fount, Fint, Quarterback, Quantec, Dumoolmori, as well as securities firms and asset management companies. As a result, even products with similar concepts can have significant differences in returns depending on the company's investment strategy. For example, Hana Securities' 'Global Asset Allocation Overseas ETF No. 1,' which follows a global diversification concept, recorded a negative return of -13.62% over one year. In contrast, a similar global asset allocation product, FnGuide’s ‘W-Robo Fund Selection,’ achieved a return of about 4.5%.

Even funds managed by the same AI can have different returns depending on investment type (conservative, risk-neutral, aggressive), investment period, and market conditions. For instance, among commercially available AIs that passed the testbed, Quantec Investment Advisory’s 'Quantec Quality Focus Domestic Stock No. 1' fund, which invests in domestic stocks, recorded a 16.26% return over the past three months. However, during the same period, 'Quantec Domestic Large-Cap Stock No. 5' showed a decline of about -6%. Additionally, RA AI finds it difficult to predict sudden short-term stock price surges, so in terms of quick response, it cannot be said to completely outperform human management capabilities.

On average, however, the longer investors hold RA products, the better their returns compared to those investing in the KOSPI or major large-cap stocks. According to Koscom, the average return after one year of investment in RA algorithms was -6% for conservative types, -8.9% for risk-neutral types, and -11.9% for aggressive types, significantly outperforming the KOSPI return (-25%) and KOSPI 200 (-26%) during the same period. However, in the short term, during the fourth quarter of last year (three months), while the KOSPI rose 3.75% and the KOSPI 200 index increased 3.46%, the aggressive RA algorithm only achieved a return of -1.6%.

Strength in Long-Term Investments Such as Pensions

Experts expect RA to have strengths in managing long-term investment products such as pensions in the future. Pension investments require various investment concepts tailored to investor preferences. However, ordinary investors find it difficult to access securities firms' private banking (PB) services, and the pension product concepts offered by existing financial companies are limited. Through RA, anyone can receive pension PB services.

Among domestic RA-specialized fintech companies, Fount Investment Advisory’s algorithm called ‘Blue Whale,’ which manages discretionary and advisory contract assets exceeding 1 trillion KRW, measures individual investor preferences and aims for stable performance by adjusting asset weightings. It targets an average annual return of about 7-8% for pension savings products. To defend returns against macroeconomic changes, Fount analyzes over 52,500 scenarios and adjusts asset allocations ahead of market trends. Kim Young-bin, CEO of Fount, expressed optimism, saying, “As the importance of long-term investment products such as pensions grows, RA investment will attract more attention.”