DOI: 10.1002/jsc.

2201

RESEARCH ARTICLE

Ѵach!och !oboŊA7ˆbsor ƓĺƏĹ )_;m arঞCcbaѴ bmt;ѴѴb];mc;

r;rѴac;s _†lam 7bscr;ঞomŖ

albr $ohbc

Internaঞonal University
International &niˆersity of
o= onaco/IS
Monaco/INSEEC,,
aris, Monaco,
Paris, onaco, France
rance Abstract
orr;srom7;mc; lach!och, the lar]est &S inˆestment mana]ement Crm, has started to rerlace human stochŊ
Damir Tokic, Internaঞonal &niˆersity o= richers with the =ull automated inˆestment rro]ram, based on sel=Ŋlearnin] arঞCcial intelli]ence
onaco, 2, ˆenue lbert II, onaco 98000,
al]orithms. $his is the Crst hi]hŊrroCle case in the Cnancial industry where arঞCcial intelli]ence
rance.
rerlaces human discreঞon. $he adˆanced ˆersion o= lach!och !oboŊdˆisor can also be
mail: dtokicŠinseec.com
customiŒed to rer=orm within the strate]ic rlannin] =rameworh. uman discreঞonary decisionŊ
mahin] jobs are at rish o= bein] rerlaced by machines.

ƐՍ | Ս$! &$
lach!och Inc. is the lar]est &S inˆestment mana]ement comrany
with Ū5.1 trillion in assets under mana]ement (&) and 1ƒ,000
=ullŊঞme emrloyees (see $able 1). lach!och deriˆes a substanঞal rorŊ
ঞon o= its reˆenue =rom inˆestment adˆisory and administraঞon =ees,
which are based on rredetermined rercenta]es o= the marhet ˆalue o=
assets under management.
lach!och has been able to charge relaঞˆely higher =ees =or serŊ
ˆices related to management o= acঞˆe etuity =unds, when comrared
to the =ees related to other tyres o= assets under management. s $able 2
shows, in 201ѵ these acঞˆe etuity =unds accounted =or only ѵѷ o=
&, but rroduced 1ѵѷ o= reˆenues, mahing this the lach!ochĽs
most rroCtable business segment. lach!och had been emrloying
strictly human stochŊrichers to manage these acঞˆely traded rortŊ
=olios, with eŠrectaঞons to rroduce a relaঞˆely be‚er rer=ormance
comrared to the rassiˆe indeŠ =unds or iŊshares.
oweˆer in 201ѵ, as $able 1 shows, these acঞˆe etuity =unds
eŠrerienced oˆer Ū20 billion in oulows, as inˆestors rotated their
=unds into the rassiˆe iŊshare indeŠ =unds. ore imrortantly, accordŊ
ing to orningstar, only 11ѷ o= lach!och acঞˆe etuity =unds haˆe
beaten their benchmarks (Thomas, 2017).
ccording to lack!ock O Laurence
ink, the likely reason =or inYuence o= human being, using mathemaঞcal algorithms to surrort
the relaঞˆe underrer=ormance o= acঞˆe etuity =unds, and the resultŊ
ing oulows, is the limitaঞon o= a human discreঞon in acঞˆe rorolio
management and stockŊricking: ľThe democraঞŒaঞon o= in=ormaঞon
urther,
* JL classiCcaঞon codes: 24, 11, ѵ14, 15
has made it much harder =or acঞˆe management. We haˆe to change
the ecosystemŌthat means relying more on big data, arঞCcial intelŊ
ligence, =actors and models within tuant and tradiঞonal inˆestment
strategies.Ŀ (Thomas, 2017) lack!ock eŠecuঞˆe ark Wiseman
added: ľThe old way o= reorle siমng in a room ricking stocks, thinkŊ
ing they are smarter than the neŠt guyŌthat does not eŠist anymore.Ŀ
(Thomas, 2017)
In arch o= 2017, lack!ock announced the rlan to allocate
around 11ѷ o= acঞˆe etuity =unds to ľtuanঞtaঞˆe strategies that
adort a more ruleŊbased arrroach to inˆesঞng.Ŀ s rart o= restrucŊ
turing, 7 out o= 5ƒ stock rickers will leaˆe the =unds, along with ƒѵ
sta@ members connected with the =unds (Thomas, 2017). ased
on these announcements, lack!ock intends to gradually rerlace
human direcঞon with arঞCcial intelligence, to imrroˆe the rer=orŊ
mance o= acঞˆely traded etuity =unds, and to stor the oulows
=rom itsĽ most rroCtable diˆision. ssenঞally, lack!ock has started
to rerlace human stockŊrickers with !oboŊdˆisor 4.0, which is a
=ull automated inˆestment rrogram, based on sel=Ŋlearning arঞCcial
intelligence algorithms.
Deloi‚e (201ѵ) deCnes a !oboŊdˆisor as ľan online rorolio
management soluঞon that aims to inˆest client assets by automaঞng
client adˆisory.Ŀ ľ!oboĿ stands =or ľan automated rrocess without the
inˆestment decisions.Ŀ ľdˆisorĿ stands =or ľwealth management serŊ
ˆice.Ŀ The objecঞˆe o= !oboŊdˆisory is to ľrromise easy inˆestment
success eˆen when there is limited Cnancial background knowledge,
ঞme, or intenঞon to deal with selecঞon inˆestment ˆehicles.Ŀ
ľclients trans=er the resronsibility o= asset allocaঞon to an algorithm.Ŀ

Strategic Change.
Change. 2018;27(4):285–290.
2018;27(4):285–290. wileyonlinelibrary.com/journal/jsc
wileyonlinelibrary.com/journal/jsc ©© 2018
2018 John
John Wiley&&Sons,
Wiley Sons,Ltd.
Ltd. 285
285
286 TOKIC
TOKIC

TA Ɛ Պ lack!ock & byrroduct tyre and inˆestment style

;c;lb;r ƒƐķ 2ƏƐ5 ;t bmYo‰s Őo†Ѵo‰ső Act†bsbঞom arh;t c_am]; * blract ;c;lb;r ƒƐķ 2ƏƐ6
tuity (in millions)
Սcঞˆe (Ū) 281,ƒ19 (20,2ƒ0) — 21,045 (7,101) 2ƕ5ķƏƒƒ
ՍiShares 82ƒ,15ѵ 74,914 — 56,469 (ƒ,287) Ɩ5Ɛķ252
ՍonŊT indeŠ 1,ƒ19,297 (ƒ,260) — 141,520 (26,666) ƐķƓƒƏķ8ƖƐ
tuity subtotal 2ķƓ2ƒķƕƕ2 5ƐķƓ2Ɠ — 2ƐƖķƏƒƓ ŐƒƕķƏ5Ɠő 2ķ65ƕķƐƕ6
Ս iŠed income
ՍՍcঞˆe 719,65ƒ 16,625 — 22,742 (9,024) ƕƓƖķƖƖ6
ՍՍiShares 254,190 59,91ƒ — ƒ,782 (ƒ,178) ƒƐƓķƕƏƕ
ՍՍonŊT indeŠ 448,525 4ƒ,417 — 56,295 (40,575) 5Əƕķ662
iŠed income subtotal ƐķƓ22ķƒ68 ƐƐƖķƖ55 — 82ķ8ƐƖ Ő52ķƕƕƕő Ɛķ5ƕ2ķƒ65
Սulঞasset ƒ76,ƒƒ6 4,227 — 22,520 (8,076) ƒƖ5ķƏƏƕ
Սlternaঞˆes
ՍՍore 92,085 (1,165) — (291) (1,999) 88ķ6ƒƏ
ՍՍurrency and commodiঞes 20,754 6,12ƒ — 1,920 (489) 28ķƒƏ8
lternaঞˆes subtotal ƐƐ2ķ8ƒƖ ƓķƖ58 — Ɛķ62Ɩ Ő2ķƓ88ő ƐƐ6ķƖƒ8
LongŊterm Ɠķƒƒ5ķƒƐ5 Ɛ8Əķ56Ɠ — ƒ26ķƏƏ2 ŐƐƏƏķƒƖ5ő ƓķƕƓƐķƓ86
Սash management 299,884 29,228 80,6ƒ5 4ƒ0 (6,59ƒ) ƓƏƒķ58Ɠ
Սdˆisory 10,21ƒ (7,601) — (68) 2ƒ8 2ķƕ82
Total ($) Ɠķ6Ɠ5ķƓƐ2 2Ə2ķƐƖƐ 8Əķ6ƒ5 ƒ26ķƒ6Ɠ ŐƐƏ6ķƕ5Əő 5ķƐƓƕķ852
omronent changes in & byrroduct tyre and inˆestment style =or 2016 are rresented below.
Source: 2016 10 nnual !erort.

TA 2 Պ lack!ock miŠ o= base =ees miŠ o= aˆerage & by asset class

bŠ o= bas; =;;s bŠ o= aˆ;ra]; A& b‹ ass;t cѴassa

2ƏƐ6 2ƏƐ5 2ƏƐƓ 2ƏƐ6 2ƏƐ5 2ƏƐƓ
tuity (ѷ)
Սcঞˆe 16 17 18 6 6 7
ՍiShares 27 28 28 17 17 17
ՍonŊT indeŠ 7 7 7 27 ƒ0 ƒ0
tuity subtotal (ѷ) 5Ə 52 5ƒ 5Ə 5ƒ 54
Ս iŠed income Ս Ս Ս Ս
ՍՍcঞˆe 17 15 15 16 16 15
ՍՍiShares 7 6 5 6 5 4
ՍՍonŊT indeŠ ƒ ƒ ƒ 1Ə 10 10
iŠed income subtotal (ѷ) 27 24 2ƒ ƒ2 ƒ1 29
Սulঞasset 11 1ƒ 1ƒ 8 8 8
Սlternaঞˆes Ս Ս Ս Ս
ՍՍore 6 7 7 2 2 2
ՍՍurrency and commodiঞes 1 1 1 1 — 1
lternaঞˆes subtotal (ѷ) 7 8 8 ƒ 2 ƒ
LongŊterm (ѷ) 95 97 97 9ƒ 9Ɠ 9Ɠ
Սash management 5 ƒ ƒ 7 6 6
Total eŠcluding dˆisory & (ѷ) 1ƏƏ 1ƏƏ 1ƏƏ 1ƏƏ 1ƏƏ 1ƏƏ
The table below lists the asset tyre miŠ o= inˆestment adˆisory, administraঞon =ees, and securiঞes lending reˆenue (collecঞˆely ľbase =eesĿ) and miŠ o= aˆerage
a

& by rroduct tyre: aˆerage & is calculated as the aˆerage o= the monthŊend srot & amounts =or the trailing 1ƒ months.
Source: 2016 10 nnual !erort.
TOKIC
irst, to di@erenঞate between the rassiˆe and acঞˆe inˆesঞng, rassiˆe inˆesঞng (
ama, 1965). These rassiˆe inˆestors inˆest =or the
this arঞcle eŠrlains the theoreঞcal =oundaঞon =or the set o= inˆestment
strategies based on the eLcient market hyrothesis (). Second,
the arঞcle eŠrlains the rassiˆe inˆesঞng strategy, and the historical
use o= !oboŊdˆisors in rassiˆe inˆesঞng. Third, the arঞcle eŠrlains
the acঞˆe inˆestment strategy, and sreciCcally the use o= technology
in systemaঞc trading.
ourth, the arঞcle sreciCcally reYects on lackŊ change, these rassiˆe inˆestors automaঞcally rebalance their rorolio
!ock !oboŊdˆisor 4.0, and the emerging use o= technology in disŊ
or eŠamrle, an inˆestor in his/her late 20s automaঞcally
creঞonary acঞˆe inˆesঞng based on =undamental analysis.
inally, the allocates a 100ѷ o= =unds to stocks. Once in the late 40s or early 50s,
arঞcle discusses the imrlicaঞons o= the arrarent a‚emrt to rerlace
human discreঞon with arঞCcial intelligence =or the Cnancial industry,
and broadly =or other industries.
2Ս | ՍT   A T! A ITIOA
I("T T "T!ATI"
 states that the market rrice o= a Cnancial asset reYects all relŊ
eˆant in=ormaঞon (see
ama, 1965). SreciCcally, (1) the weakŊ=orm
 suggests that the market rrice reYects all historical rrice/ˆolume
in=ormaঞon; (2) the semistrong =orm  suggests that the market
rrice in addiঞon reYects all rublically known =undamental in=ormaŊ
ঞon; and (ƒ) the strongŊ=orm  suggests that the market rrice also
reYects all rriˆate in=ormaঞon.
The  is a theory, and inˆestors =rame their inˆestment stratŊ
egy based on their belie=s whether the sreciCc ˆersion o=  holds
or eŠamrle, !oboŊdˆisor 1.0 automates the rrocess o=
true, or not. Inˆestors who belieˆe that the semistrong ˆersion o= 
holds true engage in rassiˆe inˆestment strategies. On the other hand,
inˆestors who reject the semiŊstrong ˆersion on the  engage in
or
acঞˆe inˆestment strategies based on =undamental analysis. Inˆestors
who eˆen reject the weakŊ=orm  engage in acঞˆe trading based
on technical analysis.
igure 1 illustrates these strategies.
ƒՍ | ՍA""I( I("TI A I"TO !ICA
&" O
!OO҃A (I" O! " cess. Inˆestors also haˆe to Cll the online tuesঞonnaire, and based on
Inˆestors who belieˆe that the Cnancial markets are eLcient, or
accert the  at least in the semistrong =orm, engage in soŊcalled
techicals fundamentals
I&! 1 Պ Inˆestment/trading strategies based on eLcient market
hyrothesis. Œolor Cgure can be ˆiewed at wileyonlinelibrary.comœ
287
287
long run and select securiঞes that track broadŊbased market indices,
such as the S& 500 or other country/industry sreciCc indices. SreŊ
ciCcally, these inˆestors generally buy wellŊdiˆersiCed indeŠ =unds and
hold them unঞl their reঞrement objecঞˆes change, which could be
measured in decades. Once their reঞrement inˆestment objecঞˆes
holdings.
an inˆestor automaঞcally rebalances the rorolio to include some
lower risk assets. s the reঞrement arrroaches, an inˆestors autoŊ
maঞcally adds bonds to the rorolio, while a[er the reঞrement, an
inˆestor should be a 100ѷ in bonds. The rassiˆe inˆesঞng strategy
is also known as the buyŊandŊhold strategy. assiˆe inˆestors donĽt
try to ঞme the market, or rredict the shortŊterm direcঞonal moˆes,
and remain commi‚ed to their longŊterm strategy desrite the cyclical
Yuctuaঞons in rrice.
ƒĺ1Ս|Սassbˆ; bmˆ;sঞm] †sbm] !oboŊA7ˆbsors
Inˆestment management Crms that rroˆide their serˆices to rassiˆe
inˆestors haˆe been eŠtensiˆely using technology to =ully automate
the rassiˆe inˆesঞng rrocess, rrimarily to lower the inˆestment =ees
and imrroˆe eLciency. SreciCcally, the Crms like lack!ock haˆe
been imrlemenঞng seˆeral di@erent ˆersions o= !oboŊdˆisors.
asset allocaঞon. Within this rrocess, inˆestors haˆe to Cll the online
=orm, and based on their rredeCned inˆestment objecঞˆes, the rroŊ
gram suggests an arrrorriate rassiˆe rorolio asset allocaঞon.
eŠamrle, inˆestors in their late 20s automaঞcally receiˆe the recŊ
ommendaঞon to allocate 100ѷ o= =unds to stocks. The client is sঞll
resronsible =or indiˆidually readjusঞng the rorolio allocaঞon as the
inˆestment objecঞˆes change, =or eŠamrle with age (Deloi‚e, 2016).
!oboŊdˆisor 2.0 addiঞonally automates the riskŊallocaঞon rroŊ
their rredeCned inˆestment objecঞˆes, the rrogram suggest the sreŊ
ciCc rredeCned riskŊallocaঞon rorolio (not a simrle asset allocaঞon),
which is more adˆanced comrared to !oboŊdˆisor 1.0. ddiঞonally,
a human inˆestment manager becomes resronsible =or rorolio rebalŊ
ancing based on a rredeCned set o= rules. Thus, giˆen the signiCcant
human inˆestment manager inˆolˆement, !oboŊdˆisor 2.0 is more o=
a semiautomated adˆisory rrogram (Deloi‚e, 2016).
!oboŊdˆisor ƒ.0 emrloys comrleŠ algorithms to rrorose rortŊ
=olio rebalancing, which is more technologically adˆanced comrared
to !oboŊdˆisor 2.0. oweˆer, a human inˆestment manager sঞll has
the Cnal oˆersight oˆer the inˆestment decision based on a rredeCned
inˆestment strategy. ote, the client has an orঞon to accert or reject
the inˆestment strategy recommendaঞons, and also has the ability to
customiŒe the rorolio selecঞon rrocess (Deloi‚e, 2016). The clientĽs
ability to customiŒe the inˆestment decision rrocess allows the client
to enable !oboŊdˆisor ƒ.0 =or acঞˆe inˆesঞng as well.
!oboŊdˆisors designed =or rassiˆe inˆestors signiCcantly reduce
the interacঞon between a human inˆestment manager and a client.
288
The rrocess o= determining the inˆestorsĽ objecঞˆes is =ully autoŊ
mated. The rrocess o= rorolio selecঞon, including the risk manageŊ
ment, is nearly =ully automated. The rorolio rebalancing rrocess is
mostly automated, but sঞll retuires some client–manager interacঞon.
Thus, due to the highly automated rassiˆe inˆesঞng rrocess, the
inˆestment Crms like lack!ock haˆe been able to signiCcantly lower
their =ees =or this sreciCc serˆice. The combinaঞon o= lower =ees and
reriodically be‚er inˆestment rer=ormance has caused signiCcant
& A  TA" A T  )
inYows into these rassiˆe =unds. oweˆer, the lower =ees =rom rasŊ
I"C!  TIOA!+
siˆe inˆesঞng =unds also negaঞˆely a@ect the oˆerall rroCtability o=
inˆestment Crms, which emrhases the imrortance o= highly rroCtable,
higherŊ=ees acঞˆely managed =unds.
ƓՍ | ՍACT I( I("TI A I"TO! ICA
&" O
T COO+
O! "+"T AT IC =undamental in=ormaঞon is the =oundaঞon o= acঞˆe =undamental
T!A I
Inˆestors who do not belieˆe that the Cnancial markets are eLcient,
and reject sreciCcally the weakŊ=orm  engage in acঞˆe trading
based on technical analysis. These traders belieˆe that it is rossible to
eŠtrarolate historical trends into the =uture, and to rredict the =uture
rrices based on their historical rrice/ˆolume ra‚ers (see Treynor,
1981). s a result, these acঞˆe traders try to ঞme the markets and rreŊ
dict the shortŊterm direcঞonal rrice moˆes based on the sreciCc and
systemaঞc set o= rules.
or eŠamrle, trendŊ=ollowing is the most roruŊ sell oˆerˆalued stocks, whose =undamental ˆalue is lower than the
lar systemaঞc trading strategy. The trendŊ=ollowers systemaঞcally buy
Cnancial assets as their rrices rise, irresrecঞˆe o= their =undamentals.
ddiঞonally, there are the channelŊtraders, who Crst determine the
ľrrice channel,Ŀ and then systemaঞcally buy as the rrice reaches ľthe
surrort leˆel,Ŀ and sell as the rrice reached the ľresistance leˆel.Ŀ
Other ľruleŊbased strategiesĿ inˆolˆe buying ľthe breakouts,Ŀ and sellŊ
ing ľthe breakdowns.Ŀ
Ɠĺ1Ս|Ս †amঞtaঞˆ; s‹st;laঞc tra7bm] †sbm]
aѴ]orbt_ls
The systemaঞc trading rrograms that reject the weakŊ=orm  and
use the technical analysis to rredict the =uture rrices are generally
=ully automaঞŒed tuanঞtaঞˆe rrograms based on comrleŠ algoŊ
rithms. These soŊcalled ľtuantsĿ usually trade on shortŊterm horiŒons,
someঞmes eˆen intraday. These are also known as the ľhighŊ=reŊ
tuency traders.Ŀ The algorithms emrloyed in these rrograms set the
sreciCc systemaঞc rules to: (a) iniঞate the trading rosiঞons, (b) select
the eŠit leˆels =or rroCtŊtaking, and (c) to select the storŊloss leˆels to
eŠit the trade at an accertable loss should the trade rredicঞon =ail.
The comruter rrogram eŠecutes all trades, systemaঞcally based on
rrerrogrammed rules. In =act, the key a‚racঞon o= the tuanঞtaঞˆe
acঞˆe trading is the discirlined systemaঞc arrroach, as the human
emoঞon is comrletely eliminated out o= the trading decisions rrocess
(Tokic, 2014).
The role o= a human inˆestment manager is reduced to rrogramŊ
ming the rredeCned trading rules and their systemaঞc eŠecuঞon,
TOKIC
TOKIC
monitoring the system rer=ormance, and adjusঞng the trading rules
i= necessary. Thus, within this rrocess, a human has the key strategic
rrogramming role, while the comruter rrogram has the role to sysŊ
temaঞcally eŠecute the rredeCned strategy.
5 Ս | ՍACTI( I("T I A" O
!AT IO O
!O O ҃A (I"O ! "
Inˆestors who donĽt belieˆe that the Cnancial markets are eLcient,
and reject sreciCcally the semistrong =orm  engage in acঞˆe
inˆesঞng based on =undamental analysis. The assumrঞon that marŊ
ket rrices someঞmes =ail to rrorerly account =or rublically known
inˆesঞng (see Treynor, 1981). The acঞˆe =undamentally based inˆesŊ
tors try to ঞme the market, and rredict shortŊterm direcঞonal rrice
moˆes based on the rerceiˆed ineLciencies such as oˆerŊreacঞons
or underŊreacঞons to new in=ormaঞon. The rrimary tools o= these
acঞˆe =undamental inˆestors include the analysis o= macro ˆariables
(such as interest rates, D, inYaঞon) and the analysis o= CrmŊsreŊ
ciCc ˆariables (such as eŠrected earnings, rroduct deˆelorment,
management issues). The objecঞˆe is to buy underˆalued stocks,
whose =undamental ˆalue is higher than the market ˆalue, and to
market rrice. There are two main arrroaches to =undamental analyŊ
sis: (1) the torŊdown arrroach; and (2) the bo‚omŊur arrroach. The
torŊdown =undamental arrroach Crst eˆaluates the macro in=ormaŊ
ঞon, then creates the assetŊclass rotaঞon strategy, or the sector
rotaঞon strategy, and Cnally selects the indiˆidual stocks within the
target sectors. The bo‚omŊur arrroach is strictly =ocused on CndŊ
ing oˆerˆalued and underˆalued stocks, which is a rure stockŊrickŊ
ing strategy.
Inˆestment managers who rractice the =undamentally based
actiˆe inˆesting strategy are wellŊin=ormed, wellŊeducated, and
highly eŠrerienced rro=essionals with broad insights into global
economic, rolitical, and georolitical deˆelorments. They use their
discretion to initiate trades and inˆestment rositions, which means
their strategy is based strictly on a human analytics. Investors who
allocate =unds to these discretionary traders consider and evaluŊ
ate the managerĽs background and the rer=ormance record. iven
that there is a very small rercentage o= investment rro=essionals
that have the carabilities to consistently overŊrer=orm using their
surerior discretionary abilities, investors are willing to ray much
higher =ees to invest with one o= these ľsurerstar =und managŊ
ers.Ŀ ost hedge =unds charge 20ѷ o= investment rro=its as the
rer=ormance =ee, in addition to 2ѷ o= asset under management
as the administration =ee. These active =unds are the most rro=Ŋ
itable business segments =or the investment management =irms
like lack!ock. s a result, investment management =irms have an
incentive to maŠimiŒe client allocations to the actively managed
=unds.
TOKIC 289
289

5ĺ1Ս|Ս"r;cbaѴ cas;Ĺ Acঞˆ; 7bscr;ঞomar‹ bmˆ;sঞm] †sbm] 6 Ս | ՍI ICATIO" O ! IACIA

Ѵach!och !oboŊA7ˆbsor ƓĺƏ I &"T !+ A !OA !
s rreviously discussed, lack!ock had eŠrerienced the oulows
t this roint, lackRock has allocated only 11ѷ or etuity =unds to the
=rom the highŊ=ee acঞve etuity =unds to the lowŊ=ee rassive iŊshares,
RoboŊdvisor 4.0, and the rer=ormance data is sঞll unavailable. evŊ
which imracted the Crms rroCtability. urther, only 11ѷ o= the acঞve
ertheless, i= this =ully automated investment tool rer=orms successŊ
etuity =unds had outrer=ormed. s a result, lack!ock decided to
=ully; lackRock will likely conঞnue to increase allocaঞons o= acঞvely
gradually automaঞŒe the acঞve discreঞonary etuity =unds, with the
managed etuity =unds to Robodvisor 4.0, and other comranies in the
hore to imrrove rer=ormance and stor the oulows.
Cnancial industry will =ollow the suit. Within this scenario, highŊlevel
urger (2017) rerorts that when combined, =ully automated rasŊ
jobs in the investment management industry that retuire and reward a
sive invesঞng and =ully automated systemaঞc trading account =or 90ѷ
surerb human discreঞon, such as stock rickers and Cnancial analysis,
o= trading volume =or &S stocks. Discreঞonary trading accounts =or
will likely be eventually rerlaced by arঞCcial intelligence.
only 10ѷ o= trading volume. Thus, robots are already controlling 90ѷ
ore imrortantly, other industries beyond the investment manŊ
o= trading volume on &S stock eŠchanges. ow, with the lack!ockĽs
agement industry could also start rerlacing the higherŊlevel human
rlan to gradually rerlace the discreঞonary trading with arঞCcial intelŊ
managerial rosiঞons with arঞCcial intelligence. ote lackRock
ligence, robots will eventually control 100ѷ o= trading volume, i= other
RoboŊdvisor 4.0 is able to rrocess and analyŒe the comranyŊ
investment Crms =ollow the suit. t that roint, a human investment
sreciCc strengths (S) and weakness (W) and evaluate and analyŒe
manager and human discreঞon will become obsolete as Cnancial marŊ
the eŠternal orrortuniঞes (O) and threats (T). Thus, it is able to use
kets become comrletely dominated by the machines.
the SWT =ramework, which is the basic =ramework o= strategic
an the machines really rerlicate the human discreঞon, at least
management rlanning. learly, comranies =rom other industries can
within the =ramework o= =undamental analysis o= Cnancial marketsĵ
emrloy the same =ully automated analyঞcal tool =or strategic rlanŊ
I= yes, lack!ock !oboŊdvisor 4.0 would have to rerlicate the torŊ
ning within the SWOT =ramework—customiŒed =or their own sreciCc
down =undamental arrroach, the bo‚omŊur =undamental arrroach,
industry needs.
and the combinaঞon o= the both stockŊricking arrroaches.
or eŠamrle, RoboŊdvisor 4.0 can be modiCed =or carital budŊ
The bo‚omŊur arrroach retuires a =ullŊautomated arঞCcial intelŊ
geঞng rurroses. Instead o= comruঞng the rresent value (() o= =uture
ligence rrogram to esঞmate the =undamental value o= each stock
cash Yows, Robodvisor 4.0 can be modiCed to comrute the net rresŊ
and comrare the esঞmated =undamental value to the market rrice.
ent value =or individual carital investment rrojects, using the same
!eminder, the decision rule is to buy the stock whose esঞmated =unŊ
analyঞcal =ramework and the same data sets. The carital budgeঞng
damental value is above itsĽ market value. To esঞmate the stocksĽ =unŊ
arrlicaঞon eŠtends into the new rroduct develorment, outsourcing,
damental value, a =ullŊautomated arঞCcial intelligence rrogram would
new market entry, mergers and actuisiঞons, and other. s a result,
have to be able to esঞmate the rresent value o= the comranyĽs =uture
comranies =rom other industries could eventually a‚emrt to =ully
cash Yows—meaning to =ully understand the underlying comranyĽs
automate their own strategic rlanning rrocess to remain comreঞঞve,
internal oreraঞons as well as the eŠternal threats and orrortuniঞes.
The torŊdown arrroach retuires a =ully automated arঞCcial and in rrocess rerlace human discreঞon with arঞCcial intelligence in

intelligence rrogram to accurately rredict the business cycle and higherŊlevel managerial rosiঞons.

the US Dollar cycle. Reminder, the decision rule is to sell stocks Some early academic commentaries have begun to recognize the

be=ore the recession starts and to buy stocks just be=ore the growth rise o= RoboŊosses. or eŠamrle, hamorroŊremuzic and hmetoglu

cycle resumes. Similarly, the decision rule is to buy commodiঞes and
the commodityŊbased stocks be=ore the US Dollar weakens, which
also retuires rredicঞng the global business cycles. Thus, a =ully autoŊ
mated arঞCcial intelligence rrogram has to be able to model the
eŠrectaঞons =or the relaঞve global monetary rolicies, Cscal rolicies,
and other macro variables.
iven the availability o= large databases containing comrany
Cnancial statements, coded tualitaঞve comranyŊsreciCc variables,
interest rates, commodity rrocess, currencies, macroeconomic data,
rredictable trends such as demograrhics, budgetary esঞmaঞons,
and other; RoboŊdvisor 4.0 can easily rrocess all available in=orŊ
maঞon and simultaneously emrloy the torŊdown and the bo‚omŊ
ur arrroaches to create a rower=ul =ully automated =undamentally
based investment tool. It deCnitely seems rlausible that arঞCcial
intelligence can rerlicate and rerlace human discreঞon in =undaŊ
mental invesঞng.
(2016) have begun the discussion on discussion on rros and cons o=
robot managers, Watson (2017) discuss the human/machine intelliŊ
gence combinaঞon in work=orce, while lotz (2016) rredicts that in
the =uture human might have to surrlement the skills o= machines. s
data become available, =uture research has to address the rer=ormance
o= these arঞCcial intelligence rrograms. istorically, many comranies
=rom di@erent industries have been emrloying the =ully automated
rrocesses (robots) =or costŊcuমng rurroses, generally rerlacing the
lowerŊlevels human jobs—similarly to the rrevious versions o= RoboŊ
dvisors. ow, it arrears that the arঞCcial intelligence rrograms are
also renetraঞng into the decisionŊmaking managerial rosiঞons.
igher educaঞon industry could also =eel the signiCcant imract
as the machines rerlicate and rerlace human discreঞon in deciŊ
sionŊmaking managerial rosiঞons. SreciCcally, the demand =or stuŊ
dents holding asters in usiness dministraঞon, and similar, could
decrease as analyঞcal skills become obsolete in the age o= machine
290
29Ə
decisionŊmakers. The Šecuঞve ducaঞon rrograms could become
obsolete as withinŊCrm managerial rromoঞons disarrear due to the
rrevalence o= decisionŊmaking RoboŊosses.
It is imrortant to note that these are sঞll early stages o= a gradual
rerlacement o= human discreঞon with arঞCcial intelligence within the
Cnancial industry, and other industries. t this roint it is unclear how
ama, . (1965). The behaviour o= stock market rrices. Journal Business,
would a 100ѷ robotŊcontrolled stock market a@ect the broader stock
market eLciency. I= all comruters rrograms have the same dataset,
. (2016). re you ready =or robot colleaguesĵ MIT Sloan Manage-
and the same decision rule, it is likely they would rroduce the same
trading decisions. s a result, the Cnancial markets could become
rrone to bubbles and busts. Similarly, in other industries, the comŊ
ruter rrograms would likely roint to the same rrojects and strategies,
which actually could create ľrroject chasingĿ and severe market ine=Ŋ
Cciencies and dislocaঞons.
7Ս | ՍCOC&"IO
lackRock RoboŊdvisor 4.0 is the Crst highŊrroCle case o= an a‚emrt
to rerlace human discreঞon with arঞCcial intelligence in a =undamenŊ
tally based acঞve investment management. iven that this =ully autoŊ
mated rrocess is highly rerlicable and easily customized, the success
o= lackRock RoboŊdvisor 4.0 could also lead to a rerlacement o=
human discreঞon with arঞCcial intelligence in other industries as well.
Thus, many highŊlevel decisionŊmaking managerial jobs could be at
risk to be rerlaced by robots, which some call the rise o= RoboŊosses.
evertheless, it is imrortant to conঞnue to =ollow the case o= lackŊ
Rock RoboŊdvisor 4.0 =or rotenঞal limitaঞons o= the sel=Ŋlearning
arঞCcial intelligence rrograms in the realŊworld situaঞons when dealŊ
ing with uneŠrected systemaঞc events and someঞmes erraঞc deciŊ
sionŊmaking o= global (sঞll human) rolicyŊmakers.
!
 ! C "
Burger, D. (2017). The U.S. stock market belongs to bots. Bloomberg.
Retrieved =rom h‚rs://www.bloomberg.com/news/arঞcles/2017Ŋ06Ŋ15/
itŊsŊaŊtuantŊsŊstockŊmarketŊasŊcomruterŊrrogramsŊkeerŊonŊbuying.
TOKIC
TOKIC
hamorroŊremuzic, T., & hmetoglu, . (2016). The ros and ons o=
Robot anagers. Harvard Business Review, Dec 2016. Retrieved =rom
h‚rs://hbr.org/2016/12/theŊrrosŊandŊconsŊo=ŊrobotŊmanagers.
Deloi‚e (2016, ugust). The Expansion of Robo-Advisory in Wealth Man-
agement. Retrieved =rom h‚rs://www2.deloi‚e.com/content/dam/
Deloi‚e/de/Documents/CnancialŊservices/Deloi‚eŊRoboŊsa=e.rd=.
38(1), ƒ4–105.
lotz,
ment Review Digital. Retrieved =rom h‚r://sloanreview.mit.edu/arঞcle/
areŊyouŊreadyŊ=orŊrobotŊcolleagues/.
Thomas, L. (2017, arch 28). t BlackRock, machines are rising over manŊ
agers to rick stocks. The New York Times. Retrieved =rom h‚rs://www.
nytimes.com/2017/0ƒ/28/business/dealbook/blackrockŊactivelyŊ
managedŊ=undsŊcomruterŊmodels.html.
Tokic, D. (2014). Legiঞmate sreculaঞon vs eŠcessive sreculaঞon. Journal of
Asset Management, 15, ƒ78–ƒ91.
Watson, O. (2017). The =uture o= leadershir: robots remote working, and
realŊঞme reacঞons. Strategic HR Review, 16(2), 89–90.
A&T O ! IO !A+
DAMIR TOKIC is a rro=essor o= Cnance at the Internaঞonal University
o= Monaco, and a member o= the research lab at ISC aris. e is
also registered as a Commodity Trading Advisor (CTA) and holds a valid
Series ƒ license.
o‰ to cbt; t_bs arঞcѴ;: Tokic D. BlackRock RoboŊAdvisor 4.0:
When arঞCcial intelligence rerlaces human discreঞon. Stra-
tegic Change. 2018;27(4):285–290. h‚rs://doi.org/10.1002/
jsc.2201
Copyright of Strategic Change is the property of John Wiley & Sons, Inc. and its content may
not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's
express written permission. However, users may print, download, or email articles for
individual use.