Scientific Beta

The Times: "Fund management companies hoping artificial intelligence will help them produce fabulously better investment returns may be deluding themselves, according to a new study."

The Times 23/11/2025

"(...) Fund management companies hoping artificial intelligence will help them produce fabulously better investment returns may be deluding themselves, according to a new study.

Back-testing of their hypothetical AI models is hugely overstating the performance likely to be achieved in the real world, according to a paper from Scientific Beta, a research house whose clients include BlackRock, Legal & General and UBS.

Most of the apparent gains are illusory because they are made in small company stocks that are too small to actually trade because of the lack of liquidity, it argues. Another major bias was that of hindsight: the AI choices were based on insights from data not available at the start date of the hypothetical investment.

Felix Goltz, research head at Scientific Beta and co-author of the report, said one of the claims made for AI models was that they could produce outperformance compared with benchmarks of as much as 40 per cent a year.

But after taking account of these unrealistic biases, the outperformance was “more like 3 per cent a year”, he said. (...)"