State Street uses AI to provide a newsfeed relevant to portfolio holdings

Company believes the technology will help investment managers make better decisions, mitigate risk and generate alpha

Jul 19, 2018 @ 4:43 pm

By Ryan W. Neal

State Street Corporation is the latest financial institution to introduce an artificial intelligence application designed for professional investors.

On Monday, the company launched State Street Verus, an application that builds a newsfeed that is custom-tailored to deliver the articles that are most relevant to portfolio holdings. State Street believes the technology will help investment managers make better decisions, mitigate risk and generate alpha.

(More: Advisers warming up to AI)

Verus collects articles from Thomson Reuters and other English-language publications to search for keywords associated with portfolio holdings. Once a connection is determined, the algorithm considers the content of the article, risk (as determined by State Street's truView platform) and third-party relationship data to prioritize the articles for each user.

For example, a story about Apple releasing a new iPhone would be tagged with several keywords, such as "Apple," "Tim Cook," "iPhone" and "Cupertino." Verus would determine that "Apple" and "iPhone" are the most relevant parts of the article and then provide that story to portfolios that invest in Apple or any company connected to the iPhone supply chain.

If the stocks are significant holdings for the portfolio, the story would be ranked higher in the news feed.

State Street also employs a team of former financial news editors and journalists to provide the algorithm with feedback and ensure the connections made are relevant.

Verus will help investment and risk professionals filter the information firehose to feel confident they aren't missing anything that would affect their portfolios, Stephen Marshall, head of State Street Verus, said in a statement.

Though Verus is designed primarily for institutional investors, Mr. Marshall also sees an application in State Street's wealth management services business.

"It can be quite helpful for advisers as they roll this out to their own clients or use it understand their clients' exposure to the news," he said.

Later this year, State Street wants to expand Verus' functionality to the underlying holdings of exchange-traded funds and mutual funds. Mr. Marshall added that the product's AI will also soon be able to take larger macroeconomic stories, such as Brexit, the Iran nuclear deal or the recent Helsinki meeting, and show how they affect long-term holdings.

(More: Silicon Valley, AI hit the finance world)

"Our new solution highlights not only the direct connections but also the less obvious indirect connections between these news items and clients' portfolios, shortening the amount of time between when a relevant news story breaks and when a client can comfortably answer the question, 'What is my exposure?'" Mr. Marshall said in the statement.

Michael Kitces, a partner and director of wealth management at Pinnacle Advisory Group, said the technology is helpful for advisers who trade actively or those who work with executives of a certain company or industry.

"I know some advisers who make watchlists of their clients' companies to stay updated on the latest company news so they know the buzz when they talk to their clients," Mr. Kitces said in email.

But State Street's technology isn't exactly new, and Mr. Kitces wondered what makes Verus different from functionality provided by Bloomberg, Yahoo Finance and YCharts.

"I get that they're saying it's 'AI,' but what does that mean exactly?" he said.

(More: AI, blockchain take center stage at SIFMA fintech event)

Mr. Marshall responded that because State Street has client data, there's no need to manually load in a portfolio or type in individual stock tickers. He added that Verus goes beyond providing stories directly related to stocks by showing how other securities in the portfolio are connected, and said that the other services don't rate stories in order of importance.

"Our algorithms can determine whether an article is 'important' and relevant based on machine learning algorithms — the others just search by ticker and show all news that mentions that company," Mr. Marshall said in an email. "Clients have told us that those services actually make the problem of information overload worse."

YCharts CEO Sean Brown said the massive proliferation of data over the past five years naturally has given rise to more ways to search for investment signals.

"There is an incredible opportunity for smart technology and data companies to provide offerings that help transform all of this data into actionable insights," Mr. Brown said. "The interactions between data, man, machine and investments continue to evolve rapidly."

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