When ESG Met AI: The New Rules of Investing

Investments

Prudent investing was once a fairly simple concept, at least in financial textbooks: Find a promising company with a winning product, examine the financials, analyze the industry, and write a check. Those rules of investment matchmaking built fortunes and financial empires.

But to a new breed of savvy investor, that perspective seems stuck in the 90s — the 1890s. These high-flying portfolio managers, investment bankers and hedge fund founders have their eye on a whole new set of variables: trends from ESG to sustainability and carbon neutrality, and game-changing technological innovations such as cryptocurrencies and AI.

These variables are moving targets — concepts and innovations that are being constantly redefined. ESG is a prime example.

Shorthand for Environmental, Social and Governance investing, ESG is a standard that seeks to move companies forward toward greater transparency, stewardship and social responsibility. Yet almost since its inception, the term has gotten caught up in political debates. It has been critiqued from left, right and nonpartisan perspectives.

To some traditionalists, ESG is a Trojan horse that seeks to infiltrate politically correct values into markets. Progressive commentators sometimes demand too much of ESG, and often set unrealistic expectations for what it should be and which industries are worthy of embracing it. Some nonpartisan analysts argue that businesses should stay focused on the primary mission of making money for shareholders, and not sacrifice profit for social conscience.

It’s undoubtedly true that for some companies, ESG is a buzzword, an abstract idea that provides public-relations cover for a management team while practicing business-as-usual. But irrespective of motivation, it is having a tremendous impact in the financial sector, and across a range of industries.

The new breed of investors keep their eye on this impact, rather than allow themselves to get drawn into political conflict. For them, ESG is a compass that is pointing the way to the future direction of individual companies and industries. They seek to understand all aspects of ESG, including its evolution and intersection with other key trends, including sustainability, social justice and climate change initiatives.

These trends do not have predictable impacts on balance sheets or share prices, but they are powerful drivers of corporate decision-making.

One of the pioneers in trends-based investing is Anson Funds, a Toronto-based hedge fund co-founded by Moez Kassam. For years he has built a reputation for analyzing a wide array of unconventional variables in seeking investment opportunities — such as social trends, fads, sentiments and the mercurial “herd mentality.” He goes beyond the usual professional networking to discover trends as they begin to emerge on online platforms such as StockTwits and X.

Interviewed by Forbes, Kassam explained the approach: “These guys [in social media communities] tell you what they think, they coordinate with each other, and they have scale. You have to pay attention. … You need sophisticated methodologies to translate this information into a hypothesis about the direction of a stock price, and that’s what we do.”

It is no coincidence that Anson Funds includes technological change among the trends its team closely tracks. In March, Anson Funds identified Match Group, the parent company of Tinder and Hinge, as an investment opportunity that could benefit from the application of artificial intelligence to capture greater market share and reverse the decline in its share price. At its peak in 2021, Match Group was trading at $169. Today it’s below $35 a share.

A recent review of the industry in The New York Times suggested Match Group’s misfortunes are a direct result of generational changes — the kind of social trends that Anson Funds watches closely. Dating apps were at the heart of countless marriages among Millennials, a generation that didn’t mind paying for the service. Gen Z, unsurprisingly, has a different take on relationships. They prefer to meet others in the places where they hang out. Not the local coffee shop, but rather TikTok, Snapchat and Instagram.

Paying for a dating service is so early 21st century. The rules have changed — in dating and investing — and those who spotted the trend early found a perfect match.

About Neel Achary 19384 Articles
Neel Achary is the editor of Business News This Week. He has been covering all the business stories, economy, and corporate stories.