Artificial Intelligence is changing the world. But will it change long-term equity market returns?

Artificial intelligence Is Changing the World. But Will It Change Long-Term Equity Market Returns?

S&P 500 long-term trend showing major technological revolutions including the PC, Internet, Cloud, Smartphone and Artificial Intelligence.

Artificial Intelligence is transforming industries, reshaping business models and accelerating productivity across the global economy. Many investors therefore assume that AI will also permanently increase stock market returns. But history tells a more nuanced story. Looking back at previous technological revolutions—from the personal computer and the Internet to cloud computing and smartphones—provides valuable perspective on what AI may, and may not, mean for long-term investors.rtificial Intelligence is transforming industries, reshaping business models and accelerating productivity across the global economy.

Many investors therefore assume that AI will also permanently increase stock market returns. But history tells a more nuanced story. Looking back at previous technological revolutions—from the personal computer and the Internet to cloud computing and smartphones—provides valuable perspective on what AI may, and may not, mean for long-term investors.

Artificial Intelligence Is Changing the World. But Will It Change Long-Term Equity Market Returns?

Since 1976, the S&P 500 has lived through the personal computer (1981), the World Wide Web (1991), the Internet boom (1995), cloud computing (2006), the smartphone revolution (2007), and now Artificial Intelligence (2022).

Each of these innovations changed the world. Consumers benefited enormously. Productivity increased. Entire industries emerged while others disappeared. Joseph Schumpeter described this process as creative destruction: old technologies and business models fade away, new ones take their place, and living standards improve. AI may prove no different.

The late 1990s provide a useful reminder. During the dot-com bubble, many investors believed the Internet had permanently changed the rules of investing. In many ways, it did change the economy. The Internet transformed commerce, communication and productivity. Yet after the bubble burst, the S&P 500 gradually returned to its long-term trend, as illustrated in the chart. Few investors would have predicted this outcome in 1999.

At first glance, this may seem counterintuitive. If technological revolutions reshape the economy, why don’t they permanently change the long-term return of the equity market?

The answer is simply Economics 101. A technological advantage attracts competition. Competitors adopt the innovation, barriers to entry gradually decline, and profit margins normalise over time. While a handful of companies may generate extraordinary returns, much of the economic value created by innovation ultimately accrues to consumers through better products, lower prices and higher productivity, rather than to shareholders.

Artificial Intelligence is today’s great technological revolution. It will undoubtedly create winners and losers, disrupt industries and transform the way businesses operate. But for the overall market, history suggests that this time may not be different. The long-term trend of the S&P 500, around 10.5% per year, is already remarkable. Investors should not assume that AI will permanently change the slope of that trend.

Written by ANGEL SANZ

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This content is provided for information purposes only and does not constitute investment advice, an offer, solicitation or recommendation to buy or sell any financial instrument or investment product.

The views and opinions expressed are those of NS PARTNERS SA at the date of publication and may change without notice. References to specific securities, sectors or market developments are provided for illustrative purposes only and should not be interpreted as investment recommendations or investment research.

Past performance does not predict future returns. The value of investments and the income derived from them may fluctuate and investors may not recover the amount originally invested. Investments involve risks, including possible loss of capital.

References to market indices, benchmarks or other measures of relative market performance are provided for information purposes only. NS PARTNERS SA makes reasonable efforts to ensure the accuracy of the information contained herein but provides no warranty or representation as to its completeness or accuracy.

Some entities of the NS Partners Group or their clients may hold positions in the financial instruments mentioned or may act as advisor to related issuers.

This content may not be distributed or used in any jurisdiction where such distribution or use would be contrary to local laws or regulations. Additional information is available upon request.

© NS Partners Group

Chart of the Month: Does the Traditional Fund of Funds Model Still Have a Future?

does the traditional fund of funDs model still have a future?

Comparison of equity long/short strategy performance versus fund of funds peers and the Barclays Multi-PM Equity Index over four years. — Comparison of equity long/short strategy performance versus equity fund of funds peers index and the Barclays Multi-PM Equity Index over four years.

As a firm, NS Partners has been involved in managing fund of hedge funds strategies for almost 57 years. Back in the 1990s, almost every private bank in Switzerland managed its own fund of funds for clients. At the time, it was relatively easy to generate double-digit returns: there were fewer hedge funds (and therefore less competition), while regulation remained light. The introduction of Regulation Fair Disclosure (Reg FD) in 2000 marked the end of the “fast money” era.

Given their success, many fund of funds became too large and suffered from the classic “diworsification” syndrome, which subsequently led to sub-par returns. Fast forward to today and most traditional fund of funds have disappeared, having largely been cannibalized by pod shops. The liquidation of Leverage Capital Holdings, one of the world’s oldest hedge fund of funds, in 2025 is a sign of the times.

Today, most investors have gravitated towards the multi-strategy pod-shop model, which has proven more efficient at allocating capital and cutting losses, despite being significantly more expensive than the traditional fund of funds approach. Others have turned to tailored hedge fund solutions offered by private banks.

With hedge fund assets at an all-time high, the number of new fund launches has steadily declined over the last 20 years. This highlights how the billion-dollar club of hedge funds continues to grow, attracting an ever-increasing share of industry assets.

As we all know, performance is typically inversely correlated with growth in assets under management. More importantly, the strongest portion of a manager’s track record is often generated during the first three to five years after inception—the very period before most institutional investors are willing to allocate capital.

At NS Partners, we have a long and proven history of backing hedge fund managers in their early innings, particularly in the equity long/short space. This has enabled us to build strong partnerships over time, often resulting in capacity rights, preferential fees and attractive liquidity terms. As a result, a concentrated fund of funds strategy can remain highly competitive compared with alternative hedge fund structures.

It is worth remembering that George Soros launched the Quantum Fund with a 1% management fee and a 10% performance fee. Somehow, 2%/20%—and often considerably more once pass-through costs are included—became the industry norm.

This month’s chart illustrates the performance of our equity long/short strategy over the last four years versus the average equity long/short fund of funds and the Barclays Multi-PM Equity Index over the same period.

So What Options Are Left in Today’s World of Hedge Fund Alternatives?

The Advisory Mandate

Buy high and sell low (everyone chases past performance—that’s human nature), making underperformance versus a concentrated fund of funds strategy highly likely.
Access to the best talent is often limited by capacity constraints.
Rarely invests alongside managers at an early stage.
Layered fee structures.

The Pod-Shop Model

Attractive risk-adjusted returns, although the most successful platforms are often capacity constrained.
Significant use of leverage, sometimes excessive.
Large numbers of underlying portfolio managers (often 100+) with the strongest contributors becoming less scalable over time.
Factor hedging can be detrimental to performance, particularly over the last two years.
High barriers to exit through both investor- and fund-level gates.
End investors can surrender more than 55% of gross performance through pass-through cost structures.
Often exposed to pod deleveraging events that can impair performance.

The Quant-Shop Model

High turnover and short investment horizons (from intraday to approximately 30 days), which have benefited recent performance.
Constant need to reinvent investment signals due to crowding and signal decay.
Frequently employs even more leverage than pod shops.
Investors rarely know precisely when or why losses occur (e.g., the “Quant Winter” from 2018 to 2020).
Relies primarily on algorithms with limited human intervention.

The Traditional Directional Fund of Funds Strategy

Low-cost, high-conviction portfolio of managers (12 remains the lucky number).
Backs managers before they reach the pinnacle of their careers.
Provides access to managers whose minimum investment requirements often range from USD 1 million to USD 25 million.
Liquid, with no investor-level gates that can delay capital returns for years.
Uses less leverage.
Highly difficult to replicate through an advisory mandate.

With pod shops and quant shops dominating market share today, perhaps it is time to revisit a less crowded and more focused fund of funds approach—one built around capacity-constrained managers with longer investment horizons.

The old-school approach of making directional equity bets with conviction, accepting that difficult years are inevitable, and relying on a disciplined long-term investment horizon may ultimately prove more rewarding than chasing year-to-date performance. Every strategy experiences setbacks, but a well-constructed short book can provide valuable protection along the way.

Beat Notz, our founding partner, is often quoted in research pieces published by Gavekal, a business he backed in the 1970s when it was known as Cecogest and was founded by Charles Gave:

Remember, it’s an easy business. When things get complicated, and markets are all over the place, just bear in mind that the Fed will always follow policies that benefit equity holders, because everyone in the US owns equities, and the Bundesbank will always follow policies that benefit bund holders, because everyone in Germany owns bunds. So, when markets are panicking and you don’t know what to do, just buy equities in the US and buy bunds in Germany.

Although bunds no longer exist, he was right about equities.

Written by CARON BASTIANPILLAI

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This content is provided for information purposes only and does not constitute investment advice, an offer, solicitation or recommendation to buy or sell any financial instrument or investment product.

The views and opinions expressed are those of NS PARTNERS SA at the date of publication and may change without notice. References to specific securities, sectors or market developments are provided for illustrative purposes only and should not be interpreted as investment recommendations or investment research.

Past performance does not predict future returns. The value of investments and the income derived from them may fluctuate and investors may not recover the amount originally invested. Investments involve risks, including possible loss of capital.

References to market indices, benchmarks or other measures of relative market performance are provided for information purposes only. NS PARTNERS SA makes reasonable efforts to ensure the accuracy of the information contained herein but provides no warranty or representation as to its completeness or accuracy.

Some entities of the NS Partners Group or their clients may hold positions in the financial instruments mentioned or may act as advisor to related issuers.

This content may not be distributed or used in any jurisdiction where such distribution or use would be contrary to local laws or regulations. Additional information is available upon request.

© NS Partners Group

Permian Basin Equities: Strategic Energy Assets in 2026

PERMIAN PURE-PLAYS: WHY INDEPENDENT E&PS ARE EMERGING AS STRATEGIC EQUITY ASSETS

Permian Basin equities and independent U.S. shale producers emerging as strategic energy assets in 2026 — Chart of the Month: Independent Permian Basin producers are increasingly viewed as strategic hard-asset equities amid rising geopolitical uncertainty

Recent instability in the Middle East has once again reminded energy markets that not all oil barrels carry the same value. When nearly one-fifth of global seaborne crude flows through the Strait of Hormuz, even a limited disruption can rapidly lift the geopolitical premium embedded in oil prices. In that environment, investors are increasingly forced to distinguish between oil producers exposed to geopolitical uncertainty and those positioned far from it. In this environment, Permian Basin equities are increasingly attracting investor attention as strategically positioned energy assets.

That shift in perception directly benefits the Permian Basin.

Stretching across West Texas and southeastern New Mexico, the Permian has become the most important oil-producing region in the United States, accounting for roughly 45% of total U.S. crude production and more than 40% of domestic proved reserves. Producing close to 6 million barrels per day, the basin now rivals major OPEC nations in scale while offering something many international producers cannot: political security, rapid development cycles, and low-cost supply.

The strategic appeal of the Permian lies in the quality of its barrels. These are politically secure barrels, located well outside maritime chokepoints, with breakeven prices often in the low $30–40 per barrel range. Unlike offshore or conventional megaprojects that require years of development, shale wells in the Permian can be drilled and brought online in a matter of months. That gives operators an embedded option on higher oil prices: if crude remains elevated, production can be adjusted quickly without committing to long-cycle capital spending. This combination of low-cost production and geopolitical insulation has strengthened the investment case for U.S. energy equities.

For equity investors, however, the most compelling opportunity may not be in the integrated majors, but in the independent pure-play producers.

Large integrated companies such as Exxon and Chevron use the Permian as part of a broader corporate system, where upstream production often serves downstream refining and chemical operations. That diversification provides stability, but it also dampens direct exposure to rising crude prices.

Independent operators such as Diamondback Energy, Permian Resources or Devon Energy offer a different proposition. Without downstream hedges, they retain much greater sensitivity to commodity prices, allowing shareholders to participate more directly in oil price upside. In periods of geopolitical disruption, that operating leverage can translate into disproportionately stronger cash flow.

Importantly, today’s Permian independents are no longer the aggressive shale producers of the last decade. The industry has undergone a structural transformation. Where companies once pursued production growth at any cost, management teams now prioritize return on capital at almost any oil price. Instead of reinvesting every dollar into drilling, many producers now focus on maintaining production while directing excess free cash flow toward base dividends, variable dividends, share repurchases, and debt reduction.

This shift has fundamentally changed the investment profile of the sector. As a result, leading independent E&P companies are increasingly viewed as disciplined hard-asset equities rather than purely cyclical commodity businesses.

Rather than behaving like speculative growth companies, leading Permian independents increasingly resemble disciplined cash-return businesses. Even at oil prices near $70–80 per barrel, many can generate attractive free cash flow yields while still maintaining modest production growth. The result is an equity class that can deliver income, inflation protection, and commodity upside simultaneously.

Yet despite this improvement, valuations remain undemanding. Independent Permian E&Ps continue to trade at a substantial discount to the broader equity market and often at lower multiples than the integrated majors. Investors are effectively paying less for businesses that now have stronger balance sheets, better capital discipline, and a more shareholder-friendly approach than at any point in the shale era.

That valuation disconnect suggests the market may still be pricing these companies as old-cycle commodity producers rather than recognizing their evolution into strategic energy assets.

The broader macro backdrop only strengthens the case. In a world defined by persistent inflation, geopolitical fragmentation, and supply insecurity, low-cost domestic oil producers can provide a natural hedge against many of the risks affecting traditional equity portfolios. Their earnings are tied less to consumer demand or technology spending and more to the physical value of energy itself.

In that sense, independent Permian producers are no longer simply oil stocks. They are increasingly becoming hard-asset equities—businesses that combine real asset exposure with disciplined capital allocation.

For investors seeking exposure to rising geopolitical risk without taking direct commodity ownership, the best Permian independents may offer one of the more compelling opportunities in global energy today. In a market where security of supply is becoming as valuable as the commodity itself, the most attractive barrels may be the ones located furthest from conflict—and the equities most exposed to them may still be undervalued. In today’s environment, Permian Basin equities increasingly represent a differentiated source of portfolio diversification and inflation resilience.

Written by MAXIMILIEN MESTELAN

Download PDF version Permian Basin Equities: Strategic Energy Assets in 2026

This content is provided for information purposes only and does not constitute investment advice, an offer, solicitation or recommendation to buy or sell any financial instrument or investment product.

The views and opinions expressed are those of NS PARTNERS SA at the date of publication and may change without notice. References to specific securities, sectors or market developments are provided for illustrative purposes only and should not be interpreted as investment recommendations or investment research.

Past performance does not predict future returns. The value of investments and the income derived from them may fluctuate and investors may not recover the amount originally invested. Investments involve risks, including possible loss of capital.

References to market indices, benchmarks or other measures of relative market performance are provided for information purposes only. NS PARTNERS SA makes reasonable efforts to ensure the accuracy of the information contained herein but provides no warranty or representation as to its completeness or accuracy.

Some entities of the NS Partners Group or their clients may hold positions in the financial instruments mentioned or may act as advisor to related issuers.

This content may not be distributed or used in any jurisdiction where such distribution or use would be contrary to local laws or regulations. Additional information is available upon request.

© NS Partners Group

Chart of the Month – The return of higher yields marks the end of an era

The return of higher yields marks the end of an era

The film “The return of the Jedi marks the end of an era” suggests the conclusion of a significant period of time. Similarly, the current bond market marks the end of an era in which central banks pushed interest rates to 0% and expanded their balanced sheets through the implementation of Quantitative Easing (QE). Just as in the famous George Lucas’ trilogy, there are two key events in the bond market that preceded this new era: The Great Financial Recession in 2008-09 and the Covid19 pandemic, both of which led to extremely lax monetary policies.
Now, inflation has returned to our daily lives and central banks are normalising monetary policy. As a result, bond yields across all the spectrum have increased significantly to levels that are attractive again. Unfortunately, the bond index displayed in the chart lost 15% during 2022.
The chart shows the Yield To Worst (YTW) of the Bloomberg Global Aggregate Baa Index Hedged to USD. We can identify two main points:

During the period from 2013 to 2021, when central banks significantly relaxed monetary policy, these bonds yielded an average of 2.6% in USD. When hedged to EUR, this yield was lower than 1% and when hedged to CHF, it was close to 0%. During this “era” it was difficult to achieve decent returns in the conservative portfolio of fixed-income securities, especially in EUR or CHF.
As of today, in this “new era”, we can invest in liquid Baa securities that yield 5.3% in USD (when hedged to EUR, around 4.1%; when hedged to CHF around 3.1%). This makes this asset class attractive again, as it was in 2010-11-12.

A savvy investor might point out that with US headline inflation at 7.1%, bond investors are certain to lose purchasing power before taxes, and lose even more after taxes. However, a further analysis of inflation shows that break-even inflation predictions for the next 7-10 years suggest price increases of around 2.2%. This means that we would gain 3.1% in real returns investing in relatively secure Baa bonds (BBB using S&P ratings) with average maturities of 8.9 years and a duration of 6.2 years.
SO, WHAT CAN WE EXPECT IN THIS “NEW ERA” FOR BOND INVESTORS IN 2023?

Case 1: Bond yields remain stable at these levels: Expected return 5.3%.
Case 2: Inflation is worse than expected and central banks tighten more than expected, causing the YTW to increase from 5.3% to 6.3%. Expected return -0.9%.
Case 3: Inflation follows the expected path and cental banks become less hawkish or dovish, causing the YTW to decrease from 5.3% to 4.8%. Expected return: 8.4%

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instrument referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request.
© NS Partners Group

Chart of the Month – Global macro hedge fund managers are back in the game

Global macro hedge fund managers are back in the game

The end of the free money era & the return of macro uncertainty

The last 3 years have seen the world significantly change in terms of geopolitics, climate change actions and investment outlook. Following the GFC in 2008, central banks took the lead to support financial markets by injecting massive liquidity in the system. Coordinated central bank actions were multiplied when the COVID outbreak hit the world in March 2020. One of the main consequences is that high inflation is finally back and monetary policy needs to be dramatically reversed. The era of free money has now ended and so has the low volatility market regime for all asset classes. Market volatility can be measured in a number of ways. In the chart above, the well-known quant manager AQR tries to identify regimes of ‘macro turmoil’, where macro turmoil is defined as any 12-month period where the magnitude of macro news is higher than average. They measure macro news using changes in real GDP growth and inflation, and also surprises (vs. economist forecasts) in real GDP growth, inflation and industrial production. Since 2020 we are back in this so-defined macro turmoil environment. These periods could last long like during the 70s and the 80s or around the GFC[1], periods which have been strong years for global macro managers.

Higher volatility expected to remain

Swings in monetary policy expectations are likely to remain an important market driver in 2023, meaning that equity-bond correlations could remain high. This is what happened this year, with the 60/40 model portfolio showing its worst return for 80 years! Looking forward, the multiple risk factors – hawkish central banks, structural inflation, bursting bubbles, slowing economy, energy crisis, geopolitical tensions, industrial disruption, growing social unrest – do not necessarily mean that markets will go down but they will probably remain volatile. During sharp market corrections, volatility tends to spike, liquidity dries out and correlations increase suddenly, which could lead to forced deleveraging.

More risks but also more opportunities

In this context, uncorrelated hedge fund strategies such as global macro should be well indicated to help diversify portfolios. Macro managers take long and short positions across a range of liquid asset classes (rates, equity indices, currencies, credit indices and commodities) mainly through futures and options to try to generate attractive decorrelated returns over time. They are up on average between +11.4% and +23.1% YTD as of the end of October (returns of the HFRI Macro index and the CS Macro HF index) having made money mainly shorting rates and being long the USD. They tend to show positive returns during market dislocations. Historically, when implied volatility has been high (VIX above 25), equities have been down on average -11.3%, while macro strategies have generated +6.1% annualized returns (source UBS HF PB).

Flexibility and tight risk management are the key of their success

The advantage of global macro is the flexibility of the mandate. They can invest in all asset classes, but where the opportunities are. In a highly volatile environment, the probability of getting good entry/exit points is higher. A global macro manager is successful in producing good risk-adjusted returns over time if he has a good risk management framework and particular attention is made on this aspect in their due diligence process. Sitting with high levels of unencumbered cash, now yielding 4%, they are now paid to wait and engage risk when they see interesting investment opportunities. In conclusion, the continuation of a tight monetary policy and a high volatility regime should prove favorable for macro managers in 2023.

[1] Global Financial Crisis

Note

Hedge Fund indices: HFRI Macro Total index (HFRIMI Index), Credit Suisse Global Macro index (HEDGGLMA Index).

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instrument referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request.

Chart of the Month – Stay away from greenwashing!

Stay away from greenwashing!

European Sustainable Fund Flows Compared with Conventional Fund Flows ($ Billion)

Greenwashing is quite popular lately. But, what does it really mean? Here is a definition from Investopedia: “Greenwashing is the act of providing the public or investors with misleading or outright false information about the environmental impact of a company’s products and operations. In addition, greenwashing may occur when a company attempts to emphasize sustainable aspects of a product to overshadow the company’s involvement in environmentally-damaging practices”.

Greenwashing is everywhere: in the automotive industry, in fast fashion, at the next COP27 meeting according to activist Greta Thunberg and, as far as we are concerned, in finance. The world of finance has evolved over the last few years. The social and environmental requirements of the younger generation are guiding investor’s choices. We also have climate emergencies. Regulations and governments are acting. There is no need to demonstrate it anymore, we all have to participate at our level.

According to Bloomberg Intelligence Regulations estimates, in the booming ESG market, assets are expected to exceed $53 trillion by 2025. In Europe, the Sustainable Finance Disclosure Regulation (SFDR) aims to eradicate greenwashing by mandating greater disclosure.

Looking at inflows into sustainable funds, they have increased since 2020. This year, against a backdrop of rising interest rates, inflationary pressures and conflict in Ukraine, sustainable fund flows in Europe remain higher than those of conventional funds. Interestingly, asset managers have significantly reduced the number of new ESG funds they are launching. The reason is the tightening of the regulatory environment, which makes it more difficult to pursue environmental, social and governance claims.

Market participants have to adapt constantly and face certain challenges. Wealth managers need to select Environmental, Social, Governance (ESG) financial products that are compatible with their clients’ preferences. In this blur, they also need to be aware of the different terminologies and strategies (Exclusion, Integration, Negative screening, positive screening, impact…).

Asset Managers are subject to mandatory disclosure requirements as a result of product classification. Do these products integrate ESG risks, promote ESG criteria, have an environmental or social objective? At the global level, the non-homogeneity of regulations and definitions is a handicap. At the European level, the regulations and obligations in terms of disclosures are a source of confusion. Investors seek more precision in terms of frameworks and limits and want standardized criteria.

Another issue is ESG data and its access. By announcing an ESG approach, managers expose themselves and their company to a reputational risk. An apparent solution, beyond launching new products, is to adapt current products to new regulatory requirements. In this process, it is important to remain humble.

Investors, financial analysts and asset managers have a key role to play in the transparency of the data but also through the pressure they can put on companies, for example, on the importance of Scope 3 for the calculation of greenhouse gas emissions.

One thing is certain today when selecting a company or a fund that communicates on its ESG approach, one must: “Trust but verify”.

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instrument referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request.

Chart of the Month – Artificial Intelligence & Hedge Funds

Artificial Intelligence & Hedge Funds

Artificial Intelligence and Hedge Funds

Artificial Intelligence (AI) has been mentioned for quite some years by traders from the quant world. Nevertheless, it was reasonable to wait a few years before we could establish valid congruence between this innovative data management approach and financial market intricacy. After 4 years investigating that space, we started to see some signs of maturity and constructive outcomes back in 2020-21. So, after a 5 years hiatus and no quant strategy exposure, we made the decision to allocate to some AI related strategies back in Q4 2021 and increased this segment in Q1 2022 to reach up to 20% of the strategy HF Uncorrelated allocation at the end of Q2 2022.

One of the most interesting features of these strategies is obviously their self-learning ability, both about their mistakes and great ideas. This also allows to address a more intricate market behavior: time windows. The ability to grow or shrink certain segment of a book not only from asset class point of view, a trend or momentum point of view but also considering the time frame value of a trade bring undeniable robustness to a trading strategy. This is one of the strength AI is bringing to the equation since it requires non-linear and multi-dimensional approach, in other words non-intuitive interactions

Nevertheless, an important aspect of our side of the job when picking such strategies, is to avoid to aggregate the same type of risk just because they adding value as such. AI and how it is used can protect your investment from alpha decay…the enemy of quant traders.

The graph attached is showing that yet it is possible to find generally uncorrelated strategies vs. generic markets using advanced data management but almost as important, uncorrelated strategies between each other. Some of that diversification can easily be achieved by differentiated asset classes exposure, but the key element resides in the granularity with which managers exploit the strength of AI yet with positive alpha in mind.

The four managers now part of the strategy allocation are showing such quantitative features and bring a well needed support in the very difficult markets we are dealing with this year.

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instrument referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request.