After a month in operation, the new artificial intelligence strategy of VTB bank’s robo-adviser, part of the VTB Mobile app ‘My Investments’, customers have transferred more than 1.5 billion rubles (USD $19.7 million). VTB is actively implementing the latest technologies to develop its own products. As part of this strategy, an individual portfolio of stocks tailored to each client creates an algorithm developed by VTB.
The new strategy is only available only to customers with an aggressive investment profile as it only collects portfolios only from stocks. This is currently the most aggressive strategy within the robo-adviser. In the future, VTB Capital Investments plans to develop and improve the algorithm and expand its use for creating diversified portfolios with various types of securities.
The task of the algorithm now is to find a strategy and create a portfolio with maximum profitability, taking into account the established restrictions such as the maximum possible change in the value or the share of paper in the portfolio. The algorithm sorts through all possible strategies and portfolios to find the highest potential return with the least risk. Various machine learning tools are used including linear models and deep neural networks.
“VTB Capital Investments strives to implement the best practices and engage in the most advanced technological developments. While there is an active debate around the world on whether artificial intelligence will become the predominant tool for developing financial strategies, and whether traders and fund managers will be able to compete with it in the future, we are already actively working with such algorithms and trying to use them to maximise the profits of our clients. The level of customer confidence in new technologies – the fact that they transferred 1 billion rubles under the management of this strategy in a month indicates that such mechanisms are already in high demand, and we believe that in the future this demand will only grow. ” said Vladimir Potapov, Chief Executive Officer of VTB Capital Investments, Senior Vice President of VTB, Head of the Brokerage Department.
As there are almost infinite combinations of possible strategies and portfolios, limits have been set to by VTB managers in order to find the best combinations. The portfolio consists of the most liquid shares of Russian companies on the Moscow exchange, and the algorithm reviews the portfolio at least once a month.
The result of testing the algorithm at historical prices showed its high efficiency: the return on the portfolio managed by artificial intelligence was 365% since the beginning of 2017, against the growth of the MOEX Russia Index which was 192.
To create the algorithm, a specialist team was assembled, which includes scientists and mathematicians, as well as the best portfolio managers at VTB Capital Investments.
Over 1,000 hours were spent on model calculations, with around 1,000 checks performed, and 22 algorithms with different parameters tested. In particular, the theories of Nobel laureates Harry Markowitz and William Sharp were tested: in the conditions of modern financial markets, these strategies led to virtually random recommendations when forming portfolios. The current algorithm produced the best result.
In the future, VTB Capital plans to improve its strategy and is currently working on introducing new technologies for deep machine learning and ensuring that the algorithm takes into account future news flows.
“VTB uses artificial intelligence-based technologies in most processes. Another step in this direction is the introduction of a robot that uses artificial intelligence algorithms to create optimal investment portfolios based on stocks traded on the Moscow stock exchange. VTB specialists are constantly improving this solution by testing the most modern approaches to analyzing financial markets, including using deep neural networks for selecting financial instruments. As part of further development of this area, VTB plans to create artificial intelligence algorithms for analysis based on stocks traded on foreign markets.” said Vadim Kulik, Deputy President and Chairman of the VTB Management Board.