Presented in a Q&A format, Kenanga Investors Executive Director and CEO Ismitz Matthew De Alwis shares insights into the Kenanga Alternative Series: Islamic Global Responsible Strategies Fund in this final piece in a three-part series.
How does the AI/ML approach differ from other AI-driven funds? Could you also provide insights into the various AI-driven funds currently available?
Some engineers believe they are building a “digital god” which is superb in every way. However, the dangers of over-reliance on machines, without human intervention, are real.
The infamous “flash crash” triggered by trading bots in recent years, where automated algorithms caused rapid market sell-offs in seconds, highlighting how unchecked AI can amplify risks. These algorithms, designed to execute trades at lightning speed, sold off large quantities of stocks, causing a market panic. This event highlights the potential dangers of relying too heavily on AI without human oversight.
AI is undeniably powerful, but not all-powerful. With great power comes potential for grave error. This shift is not just about technology. It’s about people who know how to wield its power.
Instead of reinventing finance to work with technology, technology is used to automate, accelerate and blitz-scale investment strategies that have been proven to work. In effect, the system simulates the work of a human analyst in building a comprehensive dossier on a company. It then overlays the fundamental thesis with sentiment indicators to determine the right moment to trade.
AI is employed to help make investing less of a gamble, stacking the odds in their favor, reducing surprises and turning investing into a more consistent process – one where precision and engineering win.
The Fund is a highly differentiated approach compared to other AI-driven funds. First, traditional factor investing is combined with advanced ML techniques, leveraging the strengths of both approaches. Next, vast arrays of data are utilized, from financial statements to satellite photos, which many funds may not fully exploit. Finally, transparency and interpretability are prioritized, unlike some “black box” AI approaches.
Second, ESG and Shariah compliant principles are integrated through a governance-first approach, to build portfolios aligned with Islamic guidance and socially responsible investing.
Third, while data and statistics play a significant role, the target fund’s systems include loops for reinforcement learning from human feedback. This includes a critical role for human oversight and intervention in reacting to black swan events, which have no historical precedent and easily befuddle machines because they are not in the training data.
In the broader market, AI-driven funds come in various forms.
Pure AI funds turn all reasoning to machines, often employing opaque “black box” models. AI-enhanced funds use AI to augment old-school methods. AI-driven ETFs are passively managed funds that utilize AI for security selection and weighting. AI-powered robo-advisors create and manage portfolios for individual investors using algorithms. Lastly, AI-driven hedge funds employ sophisticated AI techniques for complex trading strategies.
The target fund manager’s approach could be categorized as a hybrid model: not “man versus machine” but “man plus machine” whereby each party brings a set of comparative advantages, working together for optimal results. This unique positioning enables the harnessing of AI’s benefits while maintaining the robustness and interpretability that investors value.
For which market segment is this product best-suited? Why?
This product is best suited for investors seeking a Shariah compliant investment solution with a disciplined and systematic approach. As a wholesale fund with a hedge fund as the underlying investment vehicle, it offers a long-only strategy that strictly adheres to Shariah principles, making it an excellent fit for those prioritizing ethical standards in their portfolios.
We believe this product is ideally suited as a core holding for investors focused on responsible or Shariah compliant investments. The fund’s strategy targets quality companies with strong earnings potential, placing a heavy emphasis on financial stability and robust fundamentals. By focusing on businesses with solid earnings performance, the fund aims to offer exposure to companies that are well-positioned for long-term growth.
Additionally, the fund employs a systematic approach, which simply means it follows a clear set of rules to guide its investment decisions. Instead of relying on emotions or market guesses, the fund uses data and advanced technology to analyze factors like company earnings and market trends.
This disciplined, data- driven method helps the fund stay consistent and adapt quickly to changes in the market, ensuring decisions are based on logic rather than instinct.
Furthermore, the fund’s disciplined framework is designed to potentially outperform during volatile market environments, offering a strategic hedge against uncertainty while capturing growth opportunities. By balancing a focus on quality, earnings strength, and ethical investing, this fund offers a comprehensive solution for those seeking steady, long-term performance in a Shariah compliant vehicle.
Disclaimer: Investors are advised to read and understand the Master Prospectuses (MPs), the Supplemental Master Prospectus (SMP) (if any), Information Memorandums (IM) (if any), Schemes’ Disclosure Documents (DD), Supplemental Disclosure Documents (SDD) (if any), Product Highlights Sheets (PHS) as well as consider the fees, charges and risk factors involved before investing. The MP, SMP (if any), IM (if any), DD, SDD (if any) and PHS have been registered and/or lodged with the Securities Commission Malaysia (SC), who takes no responsibility for its contents and related advertisement or marketing materials, does not indicate that the SC has recommended or endorsed the product/service. The advertisement has not been reviewed by the SC. Investors have the right to request for a copy of PHS and other relevant product disclosure documents which are available at our office, at any authorized distributors and our corporate website before making investment decisions. If you are in doubt when considering the investment or any of the information provided, you are advised to consult a professional adviser. A Fund’s track record does not guarantee its future performance. Kenanga Investors Berhad is committed to prevent conflict of interest between its various businesses and activities and between its clients/director/shareholders and employees by having in place procedures and measures for identifying and properly managing any apparent, potential and perceived conflict of interest by making disclosures to clients, where appropriate. Kenanga Investors Berhad 199501024358 (353563-P)
Read the first and second articles in this three-part series.
