Ask most people what artificial intelligence (AI) is doing to investing and you’ll hear the same answer: machines learning to beat the market. A thrilling headline, but not where the real change is happening.
The shifts that will shape how your money is managed are quieter, already underway and more consequential than any robot stock-picker. Running on data and disciplined models since 1998, we have watched this field evolve from quantitative roots to machine learning to today’s AI.
By: Chloe Townsend, Data Scientist at Prescient Investment Management
1. From numbers to language
For decades, quantitative investing ran on numbers. Large language models have changed that. Machines can now read the unstructured world too, including the daily torrent of news. An earnings season produces millions of words no analyst could possibly read, but a machine can score each consistently, without fatigue. The edge is migrating from those who model numbers to those who can also read what the world is saying.
2. The alternative-data frontier
If language is one frontier, the physical world is another. Investors estimate retail sales by counting cars from satellites, gauge oil supply from storage-tank shadows and read economic growth from night-time lights. What is new is scale: cheap satellites, sensors and computing have opened a field once reserved for specialists, flagging changes weeks before official figures arrive. Edge comes from looking where others aren’t, not from modelling the same data everyone shares.
3. Convergent AI
This is the shift most people are missing. When firms run similar models on similar data, they reach similar conclusions. For all its power, AI is a force for sameness and in markets, sameness is dangerous. Convergence needs no collusion, only common inputs and crowded positions unwind badly when sentiment turns.
Markets have already seen this. In the August 2007 "quant quake", dozens of funds lost heavily within days. Each had independently built near-identical strategies from the same published factors. When one large player was forced to sell, the unwind cascaded through them all. The damage came not from flawed models but from standing where everyone else stood.
More recently, in August 2024, the crowded trade was the yen “carry”: borrow cheaply in Japan, invest in higher-yielding assets elsewhere. When the Bank of Japan raised rates and the yen jumped, that vast shared position unwound at once. Japan's main index fell more than 12% in a single day, its worst since 1987 and the shock rippled worldwide.
Autonomous agentic systems could empty a crowded trade faster than any human could intervene. Which is why we keep people in the loop. The scarce resource ahead won’t be access to AI, but the discipline to stay different and the will to question the consensus your own models hand you.
4. From black box to glass box
As AI shapes more decisions, regulators and clients are asking not just what a model decided, but why. The FSCA and SA Reserve Bank have begun surveying AI use across the sector, flagging transparency as a concern. The EU's AI Act points the same way. Explainability is becoming a requirement, not a courtesy.
What it means for your money
None of this looks like the headlines and that is the point. What is emerging is a redefinition of what data is, where edge comes from, and what it takes to be trusted with a decision.
The firms that thrive won’t be those who adopt AI fastest, nor resist it longest, but those who use it with discipline, draw on data and perspectives others overlook and stay deliberately different in a market drifting toward consensus.
The future of investing won’t be decided by technology. It will be decided by the judgment of the people who direct it.
Disclaimer:
Prescient Investment Management (Pty) Ltd is an authorised Financial Services Provider (FSP 612) in terms of the Financial Advisory and Intermediary Services Act, 2002 (FAIS).
The information in this document is provided for general information purposes only and is not intended to constitute financial advice (as defined in FAIS), investment advice, a recommendation, or an invitation/offer to issue, sell, subscribe for, or purchase any financial product. Any views or opinions expressed are those of the author (unless otherwise stated) and may change without notice. Past performance (if referenced) is not necessarily indicative of future performance, and no guarantee is given as to future returns. While reasonable care has been taken in preparing this document, no representation or warranty (express or implied) is made as to the accuracy, completeness, or fairness of the information, and Prescient Investment Management (Pty) Ltd and its affiliates disclaim liability for any loss, damage, cost, or expense (whether direct, indirect, or consequential) arising from reliance on this information. This document may contain proprietary material and is protected by copyright law. For more information visit www.prescient.co.za.
