(Bloomberg) — One year after a wave of spec exploded over her application for trademark the word “IndexGPT” in reference to an unspecified AI-powered tool, JPMorgan Chase & Co. is finally unveiling the product that will bear the name.
IndexGPT is a new range of thematic investment stocks created with the help of OpenAI's GPT-4 model. The tool generates a list of keywords related to a topic, which are then entered into a separate natural language processing model that scans news articles to identify companies involved in the space.
Essentially, it's a largely automated way to create so-called thematic indexes, which identify investments based on emerging trends — think cloud computing, e-sports or cybersecurity — rather than traditional industry sectors or the basics of the company.
It's Wall Street's latest effort to ride out the investor frenzy over all things AI, which fans say has the capacity to usher in a new era of accelerated economic growth. The excitement has helped big tech companies power U.S. stocks to repeated record highs over the past year.
Compared to that hype, IndexGPT is far from a revolution in the world of finance, where a variety of tech-led firms and quantitative traders are trying to dominate the markets with AI. However, finding fully validated use cases in a highly regulated industry where missteps can cost millions is a notorious challenge.
Rui Fernandes, JPMorgan's head of markets structuring, says IndexGPT is a first step in a long-term process of integrating AI into its index offering.
“It's about being able to pick a wider range of stocks that aren't necessarily the obvious companies that everyone already knows,” he said in an interview. “We are constantly looking for ways in which we can improve all of our offerings, from equity volatility products to commodity momentum products. But we want to do it in a gradual, thoughtful and progressive way.”
AI systems have been widely used by Wall Street for years, with banks spending billions to automate functions such as trading, risk management, fraud detection and investment research. But the rapid growth of AI generating tools – the content creation technology behind ChatGPT – has lenders COMPETITION to develop new offers to capitalize on.
Morgan Stanley has developed an in-house chatbot for its financial advisors based on OpenAI technology. Goldman Sachs Group Inc. is using generative AI to help it developers in writing software code. Citigroup Inc. turned to AI to read 1,089 pages of new capital rules in the US banking sector.
Read: Dimon compares AI's transformative impact to the steam engine
In November, Lori Beer, JPMorgan's global chief information officer, had said Bloomberg News that the filing to trademark IndexGPT was about protecting the bank's intellectual property, rather than a specific product. But the bank has been experimenting with AI, and it said it was working with regulators to ensure proper controls for its generating models.
Thematic funds were a hot part of the investment world in 2020 and 2021, when retail investors poured billions into products based on everything from robots to marijuana. But interest has deteriorated in many strategies amid a combination of poor performance and higher interest rates. Bloomberg Intelligence data shows that thematic ETFs posted $4.6 billion in outflows last year, the worst on record since 2001.
The GPT model generates more than twice as many keywords as previous software, creating “a superior representation of the topic,” according to Fernandes. The indices he helps create are aimed at institutional clients who can gain exposure through products like structured swaps or notes, but Fernandes also sees potential for its use in trend-following strategies.
“Being able to very quickly have a stock-picking methodology that represents that theme early on is very important for that type of investor because their holding horizon is not necessarily a matter of years, it's shorter in time,” he said. he. These customers “really want to be able to get new threads and have that moment,” he said.
Bloomberg LP, the parent company of Bloomberg News, offers index products for various asset classes through Bloomberg Index Services Ltd.