Is AI the missing link in modern investing?

Active investing is evolving. As AI-powered tools gain traction and institutional flows become more visible, portfolio managers are rethinking how they build and adjust positions. At the same time, tighter research budgets and shifting regulations have made it harder to maintain a traditional fundamental approach. This conversation explores how data, timing, and technology are shaping investment strategies.

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Introduction to Liam Boggan

Peter Kinahan

Hello everybody and welcome. Today I’m with Liam Boggan. Liam is CEO and founder of Quantmatix, which he would describe, I think, Liam, as a market GPS for traders with an emphasis on timing.

Anyway, Liam, welcome. How are you today?

Liam Boggan

I’m very good, Peter. Thank you for having me. It’s a pleasure to be here.

Peter Kinahan

Liam, you’ve done a lot of things in the asset management industry and perhaps this latest episode is the most exciting, maybe you could take us back to some of the roles you’ve had and the kind of experience you’ve had in the market over a long career.

Liam Boggan

I suppose everything is a journey, right? And how we got to today follows logically from the path I’ve been on throughout my career.

I was an equity analyst, became a portfolio manager, became head of equities at an asset management business in Dublin, where we managed funds for some global multinationals, some very large institutions at the time. I got a lot of exposure to big clients and large portfolios very quickly. I then succumbed to the dark side and became a stock broker.

In the family business I’ve been involved in selling stuff. So, I didn’t like being sold to, so I thought I’d start joining the sell side. Again, I worked in a variety of sales roles and research roles over that period before becoming interested in market strategy and building a product based on some of the learnings that I had. I was always the fundamental guy. As in, I had a deep passion for learning what companies did, understanding what the management did, analyzing the accounts and the P&L and all of the movements within that and overlaying with valuation.

But I did have the privilege of working with one of my best friends in college, who was a technical analyst, a chartist. And we outperformed dramatically while I was working as a portfolio manager. And it was quarter and quarter, year on year, we outperformed all of our peers.

And that was through a combination of me doing that fundamental work to identify companies that we either liked and or disliked and combine that with market timing tools and techniques so that we could essentially improve the performance of the fund by being overweight the stocks that were going up and underweight the stocks that were going down. It’s kind of simple really, but sometimes the most complex things really are quite simple if you take it to a high level.

So, that’s how we got to Quantmatix, which is a big data AI enhanced web app that covers global multi-asset. We cover thousands of instruments every day, but essentially, it’s trying to help investors do exactly what I just said. It’s trying to help people who have strong views and opinions to basically to time their investments better, to highlight opportunities where they can make money, to help them avoid areas which are going down and essentially provide somebody with an overlay.

What can institutional flows tell us about market direction?

Peter Kinahan

Let me take you back a little bit because I know the genesis of this product came from when you were working with a major custodian bank, and you got an idea of the importance of institutional order flows.

Could you maybe talk us through just how that works in practice and the effect it has?

Liam Boggan

I have to say, I’m an enthusiastic person, but I found this to be absolutely fascinating. I was already a convert to market timing techniques, but I have never seen, until I worked for a large institution for a few years, that this particular organization was one of the size players that represented about 20% of globally traded flows.

But what I learned there at first-hand was that the world’s largest institutions, they don’t collaborate, but they tend to behave as a cohort. They tend to get ideas at around the same time.

While I was there, I’ll give you a specific example. I was there in 2011 for the first day that I saw the buying of the banks globally. After the financial crash, two and a half years of selling, and we were able to see that institutionals’ weightings as if they’re holding in the banks was at an extreme low.

And I saw day one of buying followed by day two, day three, day four. And then there followed a year and a half of every day there being more buyers than sellers of banks. And so, that was very powerful to me because that proposition that it took this large institutional cohort between, on average, four to six months to execute a trade, as in to go overweight or underweight a sector, was kind of dramatic.

And again, it was an eye opener for me because I did work as head of research for a very uber fundamental top ranked equity research team in a broker in Dublin. And we had some really good analysts who made some really good calls and sometimes they went nowhere. And we could never understand why some of these stocks didn’t perform and then end up in a different role. It’s like the tide. You can’t swim against the tide. And this comes down to the whole conversation about how this company was fundamentally good for a long period of time, but during that period of time, owning it was a waste of time because it went nowhere. And then that institutional cohort switched tack, decided that this sector was something they wanted to get exposure to and off it and its peers went to the races.

There’s a lot of stuff that your average investor really can’t see in the market.

Peter Kinahan

So, it’s like this giant super tanker underneath the surface. That’s not a great analogy.

Liam Boggan

But it is like the tide, like you and your super tanker, you will be pushed back by the tide going against you no matter how big you are. That’s what I think was the key message.

Can data signals improve investment decisions?

Peter Kinahan

And yet, Quantmatix is a kind of a technical product, which infers there’s maybe a more short term perspective. Is that unfair?

Liam Boggan

So, at Quantmatix, and I’ll show you some of the examples over multiple timeframes. We actually service a range of clients, from hedge funds for whom a few days is a lot of time to large scale institutions who take, three to six months views on weightings of stocks to asset owners, pension funds who are looking to take several years view. We do our analysis across multiple timeframes, but so you can see across timeframes, how it works. It’s not short term, maybe a better way to do it is actually show you.

That’s the, so that’s the front page of the Quantmatix web app. And you can see, actually, we said last week that we thought the MAG 7 is approaching key support levels and it might bounce.

That turned out to be relatively prescient, I’ll just go to the long-term timeframe just to address that question. First of all, I’ll just show you. So, this is the S&P, this is like the chart of the S&P on our system, on a monthly timeframe, and I think it’s worth saying that anybody who participated in the webinars that we did on LinkedIn over the course of last year will have heard us bleat on that the US has been in an unequivocal bull market since this date, which is 1st of January, 2023.

You can see how, on our longer term timeframe instruments move slowly, trade within channels. We had early warnings at the beginning of December, followed by the 1st of February of the market pullback. You can also see that the trading bans, which are proprietary to us, actually work very well and instruments tend to trade within those trading bands.

I’ll switch to the medium term of the weekly timeframe, and I’ll just switch to show the chart on the Magnificent 7, because this has been the story that everyone was talking about, and it’s particularly the stonking rally from September onwards.

But again, we had an exit signal in the Magnificent 7 on the 6th of January of this year. We actually had, if I spell it properly, Tesla, we had with impeccable timing, an exit or a negative signal in Tesla on the 23rd of December. So, that’s how it works. And again, I know that we want to talk about the challenge for portfolio managers and the easiest way of doing this is if I go back to the S&P.

This is our weekly chart on the S&P and you can see that the signal turned negative on the 23rd of December, again, this is 17th of February and it rolled over. But if I just press the constituent screener here, where we’ve got all 504 stocks that make up the S&P 500. Your job as a fundamental portfolio manager, you’ve got to pick a portfolio of winners out of a universe of 500 stocks. Your challenge as a fundamental analyst is pretty much impossible. You absolutely can’t do it.

But what we have here is we have our top Quantmatix signals. Again, we have actually right now, it’s kind of fascinating, we have no top Quantmatix signals, positive or negative, but we can show you the stocks which are just on the change now, which are just starting to go positive. You can add in the ones which are starting to go negative.

And then simply what our system is particularly good at is capturing the inflection points when the score is very negative and it’s just started to turn around. It’s very good at getting right to an interesting idea in a very short space of time. This is not a recommendation. This is just telling you that the score, and you can see it just here, that the speed and direction score in advanced micro devices has literally just started to turn around.

That’s what we do. All of these charts will look kind of the same. So, it’s fast at doing that.

S&P 500 Index

Has MiFID made it harder for active managers to succeed?

Peter Kinahan

You touched on it there, the job of the fundamental analyst, I know you have some views about it. It’s not an easy job these days, especially in a post-MiFID environment.

What is MiFID?

Liam Boggan

I think MiFID has been a disaster for the European financial services industry. I could see what it was meant to do and the good reasons behind it. But in practise, MiFID has been a disaster.

These are real numbers; 70% of active portfolio managers underperform relative to their benchmark. The only reason that you would have your money in an actively managed portfolio, an actively managed fund, is for it to outperform. And therefore, you get charged higher fees for active management.

But 70% of them underperform. And they’ve underperformed for many years. The impact of MiFID , which was originally designed to protect consumers from their money being used to pay for research without them knowing, has been those research budgets.

So, remember, these guys are underperforming anyway. Since 2017, their research budgets have been cut by up to 70%. You were underperforming at the start, and now you have 70% less research budget to spend and you’re expected to still achieve that performance.

What happened then was that the investment banks and the brokers, because of the research budget cuts on the customer side, they laid off a whole bunch of analysts on the research side. Some extraordinary number, something like 750,000 people lost their jobs in financial services in Europe as a direct result, as a direct result of MiFID . And it hasn’t improved people’s performance. The corollary of this is that in the US, and I can stand up with these numbers, in the US where they’re not subject to MiFID , US portfolio managers pay on average four times as much for research as European portfolio managers.

But they also outperform, and they outperform quite dramatically. So, if you’re an asset owner, you’re like a large pension fund with billions in your fund. That four times as much that the US guys are paying is a tiny percentage of the overall assets of the managers. But the performance of several percent, and I think the average is about two, two and a half percent, increased absolute performance.

That’s absolutely massive, again, in terms of the context of the spend versus return in absolute monetary terms. So, MiFID has been a huge challenge. And again, if you are a portfolio manager, and you’re trying to manage a portfolio of like 600 European stocks, it’s going to be pretty much impossible for you to stay on top of all of the views.

And so, that continues to be the biggest challenge. And that’s the purpose of what our product is designed to do. Simply get you to be able to spend your research resources, time being the most obvious one, as well as monetary better.

Highlight the areas that are rolling over and highlight the areas that are actually turning more positive so you can actively tilt your portfolio.

The trade life cycle: 5 key stages

Are portfolio managers ready for the AI shift?

Peter Kinahan

Where do you think the industry is going right now? How do you think it’s reshaping itself and meeting the challenges that you’ve just described?

Liam Boggan

One of the consequences of MiFID has led to a massive surge in the passive industry, where active managers who are underperforming are losing their jobs. And then that institution then goes and offers the client instead of pulling the money to somebody to put it into an index tracking passive fund. So, that’s not going away, that you could get exposure to passive.

But I do think that with tools like ours, with built in AI, and there will be other tools out there, I think that the whole asset management industry is ripe for major disruption right now.

At a fraction of the cost of having a large team of humans, you can now get to the answer much quicker. I suspect that if you certainly wouldn’t be setting out for any of those very large institutions, if they were going to be started from scratch now, you wouldn’t be starting from here. You obviously do need skilled portfolio managers. And all of the guys that we know are very skilled at doing what they do. There isn’t appetite for underperformance. That’s another way of describing it.

So, again, there’s technology in terms of being able to get to decisions which are better, faster is one thing. But also, everybody thinks that they go to a large asset manager, they tell you they’re taking three to six months views, or 18 months views when they buy a stock. But all of their customers have the price of their fund on their mobile phone every day. So, there’s no appetite for sustained periods of underperformance. And the guys say, look, I’ve got a good portfolio. It’ll come right. It’s just underperforming the S&P by 5%, 10% now, it’ll be all right. There’s no appetite for that. People’s time horizons are falling and attention spans and preparedness to endure underperformance have absolutely collapsed. Everybody wants to get the right answer immediately.

Peter Kinahan

And where does this leave the old traditional fundamental analysts out there in this new environment?

Liam Boggan

I mean, as I said, all of the fundamental analysts that I know that we’ve been servicing for years, they’re all actually really very good at their jobs. One of the interesting things, though, is that given that there’s so much resource taken away, it actually leaves the market open for some really good fundamental guys to uncover really interesting ideas, like stocks which are not researched anymore, stocks which have only got a handful of people covering them.

So, there’s loads of really interesting ideas. You just have to find the right guy who has the right tools to get to that answer or who has a good nose for unearthing those kinds of stocks. So, I think, on the one hand, portfolio managers are subject to an existential threat.

But on the other hand, it creates opportunities for the better guys to actually thrive. And somewhere in the middle will be that balance. Well, actually, I think it’s going to be a handful of those guys will do very well and most of them will lose jobs.

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