What if you could create and invest in your own index of stocks, based on your preferences and expertise? And, what if an AI-powered platform could help you navigate the research and optimization process to help it outperform its peers?
Democratization and Customization Are the Main Investing Trends
The trend in financial markets is clear: democratization of knowledge and the personalization of investing. Institutions and ultra-high net investors no longer have a monopoly on accessing smart investment technologies; now anyone can become a Warren Buffet or a Cathie Wood-style investor.
In 1975, Jack Bogle invested ETFs and helped with diversification while making investing much cheaper and more convenient. The latest investment revolution we are hearing about now is direct indexing (DI). Direct indexing – an investment strategy where an investor holds individual stocks that make up an index in their own account directly, instead of using a mutual fund or ETF – is another practice that in the past was reserved for the rich, but has now been made accessible to the masses thanks to no-commission trading and fractional share trading. DI offers investors easier portfolio customization, greater diversification and higher tax efficiency.
The DI space has seen explosive growth in recent years; it is poised to grow more than 12.4% per year, faster than estimates for mutual funds and ETFs. Many large investment firms have joined the direct indexing race, scooping up companies with the technology needed to provide the service. UBS, BNY Mellon, Franklin Templeton, Vanguard and JPMorgan Chase all announced acquisitions of various DI platform providers, opting into the direct indexing space; one of the biggest asset managers, Fidelity, has opened its own direct investing platform allowing investors to create custom indices.
Getting Personal with AI-Based Equity Analysis
Direct indexing promises investors the creation of bespoke portfolios tailored to their personal preferences, but it’s still not ideal for modeling portfolios according to personal views, knowledge and needs. Of course, DI allows investors far greater flexibility and customization than regular active or passive investment vehicles. However, DI is limited in its personalization as investors are confined by an existing pool of the indexes’ stocks.
Now investors can achieve even greater portfolio customization than with direct indexing. Why choose stocks from someone else’s index when you can create your own?
Let’s say, you are a private investor with vast expertise in the field of Cloud applications. You are familiar with the technology, you know how the firms in the industry make money, and what they do to become more profitable, grow their market share and cut their costs. Wouldn’t you want to apply your knowledge to your investment portfolio? The same question would apply to any industry where you feel you know the facts, the mechanics and the fine points better than the big index suppliers. Or, you could be a fashion fan, knowing ins and outs of haute couture and wishing to invest in line with your passion: anything is possible today with the help of Artificial Intelligence.
The growing field of direct indexing is now a real game changer for retail investors; the next one will be the personalized index creation helped by AI-based fundamental research and analysis. The day when any investor can get AI-analyzed data and AI-made recommendations for any stock around the globe, of any size or industry, in any language – and add it to their own personal index, isn’t far in the future – it’s now.
How the AI Can Help Build Your Own Index
The world of investing is moved by trends – like most other human fields.
If you are an investment managing professional, once you recognize a trend, you can not ignore it because your clients will ultimately demand the possibility to capitalize on it.
For the purpose of the example, let’s take ESG investing. In order to meet your clients’ demand to invest in ESG companies, you’ll have to analyze the existing ESG universe – either via the more expensive option of bringing in professional and knowledgeable external analysis, or by a less expensive alternative of using whichever internal resources are available (which may be risky with regards of the quality of the research).
Private investors, whether they invest through Trading Platforms or banks, face the same trade-off between costs and quality, as cheap investment advice may come at the expense of the advisor’s knowledge span and professionalism.
Imagine the solution to this trade-off: an 'AI analyst', whose low cost doesn’t compromise the quality of the analysis. That will help the investors to build their own index from scratch, by filtering all the parameters that are important to them personally, while choosing AI-recommended, fundamentally strong stocks. Another option, possibly more suitable for investment professionals, is to create an index according to the client's request by entering the required parameters into the algorithm which can build the index within minutes.
Music Stocks That Dance to Your Own Financial Beat
For instance, according to our LinkedIn poll results, the investment topic that is of the most interest to the users is Music. Actually, it appears that Music is a smart investment choice: in 2021, the global music industry's revenues surged by 18.5% to their highest level since records began in the 1990s. Thanks to the rise of social media and technological advances, the music industry is now developing through many additional channels, not confined to a small number of devices like in the past. The technology is behind the surge in revenues as streaming now accounts for 65% of total revenues globally – and 83% in the US. Although streaming is the engine of the industry's upsurge, revenues were up in every format except digital downloads.
With global music revenues growing at the fastest rate in more than a decade, it’s clear why many investors are looking to add music industry stocks to their portfolios. But, how do they choose which ones to incorporate into their portfolios?
While the growth in music streaming has turned investors’ heads and re-energized interest in music and audio stocks, company-specific issues and market trends affect their ebb and flow.
Even the best companies in the music industry are facing stiff competition, including from the giants in the tech sector such as Apple Music, Amazon Music Unlimited and Google’s YouTube, which have expanded to entertainment. Music stocks can still be winners, but prospective music company investors should pay attention to the companies’ fundamentals, as only the best music companies are well-positioned to aggressively compete and can stay ahead of the evolution of the music industry.
The Music Index Made by You, for You
The Music Index made by you, with the help of AI-based fundamental analysis, would probably include the following stocks:
iHeartMedia (IHRT) – Report
iHeartMedia operates as a media and entertainment company worldwide. It operates through three segments: Multiplatform Group, Digital Audio Group and Audio & Media Services Group. The Multiplatform Group segment offers broadcast radio stations, sponsorship, and live and virtual events; and operates Premiere Networks, a national radio network that produces, distributes or represents approximately 120 syndicated radio programs and services to approximately 6,400 radio station affiliates.
iHeartMedia released impressive Q2 results on 2022-08-04. Specifically, their growth, value and income factors indicate a well-planned and balanced effort, which is generating exciting growth. There should be significant upside potential for the stock looking forward. The AI rated iHeartMedia stock as a STRONG BUY, meaning its stock has a high chance to outperform the company’s peers in the next quarters.
Warner Music Group Corp. (WMG) – Report
Warner Music Group is an American multinational entertainment and record label conglomerate headquartered in New York City; it is the third-largest company in the global music industry. With a multibillion-dollar annual turnover, WMG has operations in more than 50 countries throughout the world. The company owns a number of distinctive record labels that are home to the world’s most popular and influential artists. It owns Warner Chappell Music, the global music publishing company, and has partnerships with a number of digital media companies around the globe.
Warner Music is a stable and profitable business; however, its financial results in the last three quarters were positive, but with no significant factors particularly remarkable relative to its competitors. Therefore, WMG has been rated as HOLD by our AI, which means that its stock performance in the next quarters is expected to be in line with peers.
Live Nation Entertainment, Inc. (LYV) – Report
Live Nation Entertainment, Inc. is an American global entertainment company founded in 2010. The company promotes, operates and manages ticket sales for live entertainment in the United States and internationally. It also owns and operates entertainment venues, promotes and operates live music events and manages the careers of music artists.
Live Nation’s latest financial statement was very positive, revealing its underlying fundamental strength, not only in terms of value but also due to its impressive growth and income factors. These above-average results make a strong case for overperformance and for anticipating significant upside potential in the next quarters. Therefore, our AI analyst rates LYV as a BUY.
JYP Entertainment Corporation (A035900) – Report
JYP Entertainment Corporation is a South Korean multinational entertainment and record label conglomerate founded in 1997. It is one of the largest entertainment companies in South Korea and operates as a record label, talent agency, music production company, event management company, concert production company and music publishing house. In addition, the company operates various subsidiary ventures and divisions worldwide. Founded by K-Pop artist J. Y. Park, JYP manages many locally and internationally successful K-Pop labels.
JYP's financial performance has been ranging from good to great in the last few quarters. The latest report showed some outstanding indicators in relation to growth, value and income factors, which have earned the company a rating of STRONG BUY from our AI.
Dor Eligula is the CBO and Co-Founder of Deshe Analytics an Israel-based fintech company.
