Maintaining Humanity in an Increasingly Robotic, Automated A.I. World
I have been slow to accept that, from a service perspective, humans will ever be replaced by computers.
I’ve suggested that customers will resist “robots” and I’ve based my thinking in part on the “uncanny valley” hypothesis which postulates that the more robots look like humans the less humans will feel comfortable with them.
I am starting to rethink my assumptions and my conclusion. While humans may not be fully replaceable, I do believe artificial intelligence and robots will displace a lot of service providers. Here are a couple harbingers of the future…
Café X is now open in Hong Kong and San Francisco. It’s a robotic coffee shop where you can place your order on your phone or on an in-store tablet. You can select your drink of choice and even your desired locally roasted coffee beans. Twenty-five to 55 seconds later you have your “robot-crafted” beverage in your hand, thanks to a code sent to your phone which allows you to collect your drink. (To see CafeX in action click here)
Staying in the coffee category and bridging between humans and bots, this week Starbucks announced it is launching voice ordering capabilities within the Starbucks mobile iOS app from the Amazon Alexa platform.
According to the press release “Select customers can now order coffee ‘on command’ using My Starbucks® barista as part of an initial feature rollout integrated seamlessly into the Starbucks mobile app for iOS. At the same time, the company is launching a Starbucks Reorder Skill on the popular Amazon Alexa platform. Both features allow customers to order from Starbucks simply by using their voice….Previously announced at Starbucks Investor Day, My Starbucks® barista, is powered by groundbreaking Artificial Intelligence (AI) for the Starbucks® Mobile App. The integration of the feature within the mobile app allows customers to order and pay for their food and beverage items simply by using their voice. The messaging interface allows customers to speak or text just as if they were talking to a barista in-store, including modifying their beverage to meet their personal preference.” To see the “My Starbucks®” barista in action click here)
Ok, so what can you do to maintain humanity in an increasingly robotic, automated, and artificially intelligent world?
In a word – CARE!
While many service functions can be automated to increase speed, efficiency, and consistency – I will stand firm that there will always be a need for people who add uniquely human value through compassionate listening and authentic caring.
I will use one last example from the world of coffee to demonstrate my point. It involved a drive-thru interaction between a team of Dutch Bros baristas and a customer who was having a difficult day shortly after the loss of her husband. That Vancouver-based team listened, focused their attention on the woman, and comforted her in ways I doubt robots will ever be able to fully emulate. One moment from that interaction was captured on a mobile phone by another customer and the picture went viral. News stories about the compassionate service followed. (To see more on human service intelligence in action click here).
How are you maintaining the relevance of your human service? Will Artificial Intelligence prevail over Human (emotional) intelligence?
I may have to yield ground to robots but I won’t concede that which is uniquely human!
Building a Better Index With Strategic Beta
Written by: Yazann Romahi, Chief Investment Officer of Quantitative Beta Strategies and Lead Portfolio Manager of JPMorgan Diversified Return International Equity ETF at J.P. Morgan Asset Management
With the global economy warming up, but political uncertainty remaining a constant, it’s more important than ever for investors to position their global portfolios to navigate long-term market volatility. That’s where the power of diversification comes in, says Yazann Romahi, Chief Investment Officer of Quantitative Beta Strategies at J.P. Morgan Asset Management and Lead Portfolio Manager of JPMorgan Diversified Return International Equity ETF (JPIN).
Not all diversified portfolios are alike
In their search for diversification, many investors turn to passive index ETFs, which track a market cap-weighted index. But these funds aren’t always the most effective way to steer a steady course through volatile markets—and there are two key reasons why.
First, traditional market cap-weighted indices are actually less diversified than investors may think. For example, in the S&P 500, the top 10% of stocks account for half the volatility of the index. Within sectors, while you might assume that sector risk is distributed across the ten major sectors fairly evenly, it is a surprise to many that at any point in time, one sector can be as high as 50% of the risk.
Second, cap-weighted indices come with some inherent weaknesses, including exposure to unrewarded risk concentrations and overvalued securities. So, while these indices provide investors with exposure to the equity risk premium and long-term capital growth, as is the case with any other investment, investors can also experience painful downturns, which increase volatility and reduce long-term performance. For investors seeking equity exposure with broader diversification—and potentially lower volatility—strategic beta indices may be better positioned to deliver the goods.
How do we define strategic beta?
Strategic beta refers to a growing group of indices and the investment products that track them. Most of these indices ultimately aim to enhance returns or reduce risk relative to a traditional market cap-weighted benchmark.
Building on decades of proven research and insights, J.P. Morgan’s strategic beta ETFs track diversified factor indices designed to capture most of the market upside, while providing less volatility in down markets compared to a market cap-weighted index. Rather than constructing an index based on market capitalization—with the largest regions, sectors and companies representing the largest portion of the index—our strategic beta indices aim to allocate based on maximizing diversification along every dimension—sectors, regions and factors. The index therefore seeks to improve risk-adjusted returns by tackling the overexposure to risk concentrations and overvalued securities that come as part of the package with traditional passive index investing.
So, how do you build a better index?
As one of just a few ETF providers that combine alternatively-weighted and factor-oriented indices, our disciplined index methodology is designed to target better risk-adjusted returns through a two-step process.
First, we seek to maximize diversification across the risk dimension. This essentially means that we look to ensure risk is more evenly spread across regions and sectors, which balances the index’s inherent concentrations. As uncontrolled risk concentrations are unlikely to be rewarded over the longer term, we believe investors should strive for maximum diversification when constructing a core equity exposure.
Second, we seek to maximize diversification across the return dimension. Research shows that there are a number of sources of equity returns beyond growth itself. These include risk exposures such as value, size, momentum and quality (or low volatility). When creating a diversified factor index in partnership with FTSE Russell, we seek to build up the constituents with exposure to these factors. We therefore select securities through a bottom-up stock filter, scoring each company based on a combination of these return factors to determine whether it is included in the index. These factors provide access to a broader, more diversifying source of equity returns as they inherently deliver low correlation to one another, providing diversification in the return dimension.
So, whereas traditional passive indices allow market cap to dictate allocations, the diversified factor index seeks to ensure that we minimize concentration to any source of risk—whether it be region, sector or source of return.
How are you currently weighted versus the market cap-weighted index, and how have your under- and over-weights enhanced risk-return profiles?
Crucially, our weightings don’t reflect specific views on sectors or regions and are instead, by design, the point of maximal diversification. It is important to remember that market cap-weighted indices typically carry a lot of concentration risk—for example, at various points in time, a single sector can explain half the risk of the index when left unmanaged. At the moment, three sectors explain two-thirds of the risk of the FTSE Developed ex-NA Index—these being financials, consumer goods and industrials. In contrast, the FTSE Developed ex-NA Diversified Factor Index—or strategic beta index, which JPMorgan Diversified Return International Equity ETF (JPIN) tracks—is explicitly designed to maintain balance and therefore these sector allocations range from 8% to 12%. In the short term, any concentrated portfolio can of course outperform a more diversified one, if the concentrated bet paid off.
Investing wholly in a single stock may outperform over short-term periods. At other times, it may significantly underperform an index. However, it is well understood that an investor is better off diversifying across lots of stocks for better risk-adjusted long-term gains. The same applies here. From a pure return perspective, if financials, for example, account for half of a cap-weighted index in terms of market cap and have a strong run over the short term, of course, this index would outperform over this period. Over the long run, however, it is fairly uncontroversial to suggest that the more broadly diversified index could achieve better risk-adjusted returns.
Seeking a smoother ride in international equity markets?
For investors targeting enhanced diversification through a core international equity portfolio, JPMorgan Diversified Return International Equity ETF (JPIN) targets lower volatility by tracking an index that more evenly distributes risk, enabling them to get invested—and stay invested.
Learn more about JPIN and J.P. Morgan’s suite of strategic beta ETFs here.
Call 1-844-4JPM-ETF or visit www.jpmorganetfs.com to obtain a prospectus. Carefully consider the investment objectives and risks as well as charges and expenses of the ETF before investing. The summary and full prospectuses contain this and other information about the ETF. Read them carefully before investing.
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