What Our Clients Are Asking
Q4 | December 2019
Topic: Inside Nexus
December 18, 2019
mage used with permission: iStock/RapidEye
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What Our Clients Are Asking
Q4 | December 2019
Throughout the year we have hosted a variety of client events from our Quarterly Investment Reviews, our Women & Wealth series, regular client portfolio reviews and of course, our Annual Client Presentation. Holding these events not only gives us valuable time to connect with attendees, but also gives us an opportunity to hear what’s on our clients’ minds.
The title of this year’s Annual Client Presentation was A Brave New World – The Rise of Artificial Intelligence. We began by describing what artificial intelligence (“AI”) is. Unlike computers and robots that automate a specific routine task, AI “applies computer systems to tasks that once required human intelligence”. In its simplest form, data is gathered, whether from people browsing the internet, or from cameras and sensors on self-driving cars. From this data, and a feedback loop which continually improves the computers’ ability to make correct predictions, actions are automatically initiated. Hence, when you Google search “Florida golf”, you are welcomed by ads to Florida golf resorts for weeks on end. And in the case of a self-driving car, it gets better and better at identifying obstructions in its way and applying appropriate braking and/or avoidance techniques.
We welcomed questions about AI and any other subject from those attending. We’ve highlighted three questions that came from our audience last month (and one that didn’t), that we feel may be of interest to our readers.
How is Nexus using AI in its investment process?
More and more, our investment team is being offered (at a price) analyses and research reports that are products of AI systems. Of note, there is a particularly persistent firm out of New York City that uses satellite imagery and AI to determine what photographs of Wal-Mart parking lots across the United States can tell us about consumer spending trends and its broader economic implications. We are judicious with our research dollars and feel that, in this case, the information about short term trends is not complementary to our long-term approach. But there may be a time (and price) when an AI-inspired piece of research will aid us in our investment decision process.
How is AI affecting Nexus and the investment management industry in Canada?
There has been a great deal of attention given of late to the rise of robo-advisors and investment products that are driven by AI and machine learning. Virtually all of these entrants arrived on the scene after the financial crisis of 2007/08. Would these systems have properly anticipated the “black swan” nature of the dramatic sell-off experienced at that time? Would they have properly responded to the absence of buyers in the market and backed off their algorithmic selling, or made it worse by hitting every bid in sight? We think that such strategies will require a full market cycle before they can be judged to be a success.
In terms of the competitive impact on Nexus, we feel that we provide more than just investment performance at a reasonable price. (And we believe that the convenience of making investment commitments on your phone while you’re waiting for the bus, is overvalued and misjudged.) At Nexus, along with the personal relationships, integrated financial planning and the high touch service that we share with our clients, we feel that our clients also value knowing that our hand is “on the rudder”, and that our disciplined investment approach has yielded solid performance for over 30 years.
With all of the turmoil that we are seeing in the United States, has it had a bearing on the allocations of Canadian, U.S. and global shares in the portfolios?
As “bottom-up” investment managers, we build a concentrated portfolio of quality stocks based on their company-specific characteristics and valuations. We do not allocate to specific geographies based on their geopolitical and economic outlook (assuming we could get that right). Keep in mind that the North American companies that we own, and are chosen by our in-house investment team, are, for the most part, very global in their scope and so derive revenues from around the world. The investment management team at JP Morgan that manages the holdings in our international funds similarly screen for quality characteristics in companies that, to a large extent, are not dependent only on their home market. While specific regions in the world may suffer unforeseeable slowdowns, the portfolios at Nexus purposely have broad geographic and sector diversification to reduce volatility.
So what question weren’t we asked this year? For the first time in the last three years, we weren’t asked once if we would be investing in cannabis stocks. Funny that.
If you weren’t able to attend our annual events this November, you can view a shortened version of the presentation (with our Nexus commentary) on our website by clicking here.