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How to use artificial intelligence in index creation

26 Nov 2018

How to use artificial intelligence in index creation

Inderpal Gujral, Head of Product, Stoxx Limited

This year, Deutsche Börse’s index provider STOXX launched an index on companies involved in artificial intelligence (AI) that uses AI to select its constituents. This was a unique step towards breaking new ground; no other index provider had ever done anything like it. But it was only a first step: another index based on AI has been launched by STOXX, and more will follow.

The new mastermind behind STOXX’s innovative approaches is Head of Product Inderpal Gujral, who joined STOXX in August.

Why did STOXX pick the artificial intelligence theme?

At STOXX we have specialised in offering concepts for thematic investing and identifying megatrends that will significantly shape our society. One of these megatrends is technology in general and AI in particular. The artificial intelligence revolution has penetrated most industries and services, with machines now handling an increasing number of tasks that only humans could once do. Naturally, AI technologies present an unrivalled investment opportunity. However, companies that use or develop AI cannot be easily identified by conventional methods.

That’s where our STOXX AI Global Artificial Intelligence index comes in, which brings an innovative approach to thematic investing: it is a transparent, rules-based and progressive approach that tracks AI using AI technology. It is a digital disruption in AI investment itself.

How exactly do you identify companies that are exposed to AI?

The index constituents are selected from the universe of the STOXX Developed and Emerging Markets Total Market index, by taking a look at patent filings related to AI. This makes it possible to identify AI innovators as well as AI adopters. AI innovators are those whose main business revolves around designing intelligent programmes. Examples include software developers and semiconductor manufacturers. AI adopters are companies leveraging AI technology to offer services and products such as automotive companies designing self-driving cars or drug makers employing machine learning to improve medical diagnoses.

How did STOXX develop the expertise to do that?

STOXX teamed up with an award-winning AI company, Yewno, whose proprietary AI algorithms, which include knowledge graph techniques, are used to identify the index constituents. Knowledge graphs are a framework to identify and extract concepts or ideas, rather than just keywords, from a universe of unstructured data. This artificial system mimics the workings of the human brain – thanks to computational linguistics, neural networks and machine-learning algorithms – but with exponential speed and scope. It can thus infer connections between information points that might otherwise remain undiscovered, leading to more findings. By applying this technique Yewno determines which intellectual property patents worldwide are related to AI, facilitating the creation of a score of each company’s involvement with AI patents.

The STOXX AI index is the first thematic index to select its constituents by means of AI technology.

Going forward, will there be other index themes that will use AI?

We just launched an index on blockchain that uses the same logic: identifying constiutents by means of artificial intelligence. Blockchain is one of the most disruptive megatrends of our times, and will play a major role in the transition towards a digital, highly technological world. Naturally, we won’t stop here – there is more to come! Given the dynamic pace at which our society is changing, we are always considering new solutions for thematic investing, which attempt to capitalise on broad, disruptive, compelling and long-term trends.

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