Pictet Asset Management (AM) has launched a global equity market-neutral long/short strategy that looks to use next-generation artificial intelligence (AI) for stock selection.

Pictet TR - Quest AI is offered as a daily-dealing UCITS strategy and uses AI in a factor-neutral long/short strategy that aims to deliver pure alpha to investors.

The firm’s Quantitative Equity Strategies (Quest) investment team developed a proprietary stock selection model to forecast returns.

Its uses “well-established and verified” data sets to analyse equity markets, rather than using smart or exotic beta.

The tool looks to predict the alpha component of a stock and uses machine learning to understand return drivers to enable the team to create an optimal portfolio.

Pictet AM said the strategy offered diversification and absolute returns with no correlation to long-only equities or most alternative investments.

Using AI, the machine learning model selects stocks by capturing relationships between data over a long history.

Commenting on the launch, Pictet AM head of quantitative investments, David Wright, said: “The amount of financial data is expanding rapidly, thanks to machine learning and AI it is possible to add alpha with a profound impact.

“Our proprietary stock selection model has already been deployed as a sleeve of Pictet AM’s Multi Asset Global Opportunities fund since July 2023 - as well as its multi-strategy hedge fund, ‘Alphanatics’, and its Total Return fund, Diversified Alpha, since January 2024 - and the strategy returns have been impressive, particularly given the volatile market environment.”

Pictet AM senior investment manager, Stéphane Daul, added: “We believe existing quant factor investments offered by the broader industry can have limitations, particularly when changes to the economic regime occur.

“However, our privately-owned status and long-term approach to investing have allowed us to diligently build, train and test machine learning models, using a range of data including fundamentals, analyst sentiment, prices and market activity, that confidently deliver better outcomes for investors.”

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