Can machines consistently beat humans at investing?

RIMAR Capital appears to have answered that question.
Image: Shutterstock

In 1997 IBM’s Deep Blue computer beat Garry Kasparov at chess. A year prior, Kasparov – then the world’s greatest chess player – beat Deep Blue hands-down. Since then, machines have continued their rapid evolution, and have advanced far beyond the human ability to project moves into the future.

The same is happening in the world of investment. Algorithmic and high-frequency trading have swarmed global financial markets, raising the question: is there a future for human traders?

To answer this question, take a look at the performance results of RIMAR Capital, an investment group formed in 2014 by a group of traders, quants researchers, coders and financial analysts. RIMAR Capital’s investment decisions are driven by rigorously tested trading algorithms, rather than human analysts. With the use of technology and artificial intelligence (AI), the algorithms are capable of processing vast amounts of data at speeds that would defeat even the best teams of human analysts.

The result:

  • RIMAR’s Long-only investment strategy is up 50% after fees since January 2017, beating the benchmark S&P 500’s 41% growth over the same period.
  • RIMAR’s gold-focused Strategy A appreciated 120% since January 2017.
  • All seven of its strategies outperformed the S&P 500 index since inception.
  • 84% of all trades are successful (profitable).

One could argue that the time frames chosen are too short to declare victory for machines over humans, and that debate will likely rage for a decade or more. But the early results are indeed promising.

It’s one thing to take a long-only approach and ride a long trend such as we have seen in recent years, but what happens when calamity strikes – as has been the case since February with the coronavirus battering world markets.

Most of RIMAR’s strategies have beaten their benchmarks since the onset of the coronavirus in early February. While some of these strategies are correlated to the markets, others are not.

“We’ve had other epidemics before, and we knew that when the coronavirus struck that the market was going to be wobbly,” says RIMAR Capital CEO Itai Liptz. “The algorithms were very quickly able to analyse the likely effect on the market based on previous epidemics and started moving into cash at the beginning of February.

“We don’t believe in human intervention,” he adds. “Our system anticipated something similar to the SARS virus which happened over a decade ago, and our system started to take profit and sit on cash.”

RIMAR’s computerised systems scour 140 markets across the globe in search of opportunities, its algorithms calibrated to forecast market movements in equities, exchange-traded funds (ETFs), options, futures and other liquid assets. The average holding time is typically about 12 weeks for long-only investment strategies, with shorter time frames for its other strategies.

The rise of machine-based investment is a logical evolution in the broader move away from active to passive investment, says Liptz.

“Without doubt, the next phase in the evolution from active to passive investment is the emergence of tried and tested machine-based investment that does away with management fees and only charges fees on positive performance.”

RIMAR Capital charges 15% performance fees only if there is positive growth, and after recouping trading costs. This means no fees are charged if there is no positive growth in the underlying investments.

“More people are investing themselves rather than going through brokers, and this is helping to drive down fees,” says Liptz. “The traditional fund manager approach – where fees are deducted annually regardless of how the fund manager performs – is becoming more difficult to justify. Our approach is to say if a client doesn’t make money, we don’t make money.”

The minimum investment amount is about $10,000 and new clients are onboarded after filling out a questionnaire to ascertain their risk appetite and financial goals.

From trading to capital allocation, all decisions are put through a detailed vetting process that’s backed by AI. Each investment is constantly analysed and all aspects are monitored in real-time to mitigate risk. The result is a system that never goes to sleep, with the capacity to analyse and monitor tens of thousands of investment opportunities 24/7, and then execute on those opportunities when they occur.

As with the world of machines, RIMAR Capital is still evolving with more strategies and algorithms being tested. If the last few years are anything to go by, we can continue to expect big things from this investment firm.

Brought to you by Mexem Africa.

RIMAR Capital (Pty)Ltd is an authorised Financial Services Provider. The information prepared by the writer does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The writer is primarily responsible for the content of this article, in part or in whole, certifies that the views about RIMAR Capital and its strategies accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investments offered by RIMAR Capital, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation or particular financial needs before making a commitment to invest. The laws of the Republic of South Africa shall govern any claim relating to or arising from the contents of the information provided.

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