The Israel Securities Authority has granted Bridgewise, an Israeli artificial intelligence (AI) startup, permission to launch a chatbot capable of providing stock-picking advice.
The chatbot Bridget will allow users to receive buy and sell recommendations for various stocks, starting a new era of regulated, active AI-powered retail investing.
Bridgewise, which specializes in AI-driven investment analysis, partnered with Israel Discount Bank, one of the largest banks in Israel, to bring the service to customers later this month. The company's technology combines historical data and real-time market information to offer stock evaluations.
"We've done everything in a calculated way, with the regulators involved end to end. Being the first to launch this has placed a huge burden on us," Bridgewise's CEO Gaby Diamant said for Bloomberg.
Still, the broad adoption of AI in investment management might be some time away. SEC chair Gary Gensler warned about the risks of market concentration earlier this month, warning about a potential crisis caused by market participants "all relying on the same model, the same algorithm, the same data."
A slow rollout of active AI investing will likely reignite the decades-old debate of active vs. passive investing in an entirely new spectrum.
Active investing, which involves frequent trading and stock selection to outperform market benchmarks, has struggled to maintain its edge in recent years. Historically, active managers have had difficulty consistently outperforming passive index funds, primarily due to higher fees and the difficulty of consistently picking winning stocks.
AI could be the disruptive force needed to level the playing field, as proven by a University of Chicago study, "Financial Statement Analysis with Large Language Models," published earlier this year. The researchers found that AI writing economic narratives predicting changes in a company's earnings outperforms humans by 3% (60% vs. 57%).
While some investors will enjoy building their own stock-picking AI models, others will invest in AI ETFs.
Funds such as VanEck Social Sentiment ETF (NYSE:BUZZ) and WisdomTree International AI Enhanced Value Fund (NYSE:AIVI) are good examples of AI-driven stock picking, albeit with some human oversight.
VanEck Social Sentiment ETF, for example, uses AI to track investor sentiment by analyzing millions of social media posts and news articles and building a portfolio of large-cap stocks based on the most positive sentiment.
These funds still have short track records and their year-to-date performance has been lackluster. Both are performing well below the S&P 500 (up 20.88%) with VanEck Social Sentiment ETF gaining 14.55% and WisdomTree International AI Enhanced Value Fund rising just 8.75% year-to-date.
Their high expense ratios are also a issue, with VanEck Social Sentiment ETF costing 75 basis points and WisdomTree International AI Enhanced Value Fund costing 58 basis points.
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