Generative Artificial Intelligence
August 16, 2023
Robertson Velez, Portfolio Manager for CIBC Asset Management discusses the future of Artificial Intelligence and what it means for investors.
Generative artificial intelligence – What investors need to know
[Energetic music]
[CIBC logo]
[Generative artificial intelligence – What investors need to know]
[Robertson Velez
Portfolio Manager, Global Equities
CIBC Asset Management]
What's unique about my background is that I come from two worlds. After graduating from university with my computer engineering degree, I spent the first 12 years of my professional career as an engineer where I designed semiconductor chips in the computer graphics industry.
I later graduated from an MBA program and I switched to finance, where I have spent the last 15 years on the “buy” side covering technology stocks as an analyst and then as a portfolio manager.
[What is generative AI?]
Artificial intelligence is not a new field.
[An older-looking computer display screen with a headline of text reading “Welcome to Eliza}”, and underneath a text conversation between two characters (“You”, and “Eliza”,) in which they discuss “You’s” problems with men. A small, two-wheeled robot slowly maneuvering through a hallway (Auat Cheein F, Lopez N, Soria C, di Sciascio F, Lobo Pereira F, Carelli R, CC BY 2.0, via Wikimedia Commons). An empty self-driving car driving on the street.)
We’ve actually been doing it for many decades. What has changed is that with the most recent iteration, which is generative AI, we're able to do a lot more. Write essays, write code, create videos, create graphics.
[A computer application interface. Topmost line of text reads “Write an essay about the history of finance”. In a box below, an essay with the title “Title: The Evolution of Finance: A Journey Through History” appears, and an essay begins self-generating.]
And this has the potential to allow us to interact with machines in a whole new way.
[How will AI use evolve?]
We have seen AI used in voice recognition, image recognition, chatbots and recommendation systems.
[A woman carrying her newborn baby boy asks a question to a smart speaker. A brain scan image showing four different angles of a brain. A ‘chat’ app interface showing a text conversation between a woman and a chatbot, with the woman booking a reservation at a restaurant.]
Going forward, looking at generative AI, I see three areas where we would see potential new use cases.
[Potential use cases for generative AI:
1. Content creation and productivity
2. Search queries
3. Data analytics and customer interaction]
One is in productivity. Word processors, spreadsheets.
[Changing data on spreadsheet. Young professional woman sitting at an office desk using a desktop computer showing charts and graphs. A woman looking at data on screen; the data is reflected in her glasses.]
They would incorporate generative AI to help create content. And this can be applied to graphics creation as well as coding.
Secondly, I see potential in revolutionizing search where users can put in more complicated queries and get better, more structured answers to those queries. And that would revolutionize the way that we interact with businesses online.
And third, there's also the potential for all these businesses to make use of its troves of data that it's collected about its customers and use that data, and generative AI to be able to serve those customers and interact with them in a much more comprehensive way.
[A drone POV of a busy urban pedestrian crossing, with minimalist graphics overlaid onto the people walking around. A busy shopping mall with graphics of moving numbers overlaid on top.]
[Lessons from previous tech innovations]
So in previous technology revolutions, investors often fall into the trap of overestimating the short term and underestimating the long term. So in the case of the internet for example, we did see a sharp correction in 2000 because investors were overly exuberant about the short-term promise of the internet.
[MSCI World Information Technology vs. MSCI World
(Data Source: †Morningstar Direct June 19, 2023)
A chart with two line graphs: one plotting “MSCI World/Information Tech GR USD” and one plotting “MSCI World GR USD”. Date range on the x-axis is 1995 to 2004. Y-axis shows values for “Growth of $10,000”, with values ranging from $0 to $90,000. The line graph for “MSCI World/Information Tech GR USD” animates to show a sharp rise then drop from about 1998 to 2002, with the value beginning at about $20,000, rising to a high of about $80,000, then dropping back down to about $20,000.]
But you look out the next two decades, the potential of the internet has been realized by more than the expectations in the initial hype.
[The previous chart now zooms out to show a date range from 1995 to past 2020, and values from $0 to over $250,000. Starting in the mid 2010’s, the value of “MSCI World/Information Tech GR USD” begins spiking upwards to a high of nearly $250,000 at the current date.]
So it's important for long-term investors to have a clear view of the potential of new technologies both in the short term and the long term.
[Threats of AI?]
I think every new technology is always greeted by some trepidation about the potential risks.
[An old black and white photo of a radio tower. An old black and white photo of a nuclear plant. Old black and white footage of fashionable women arriving at a location in a car. A space shuttle launch. A satellite orbiting the earth. Robotics engineers watch and discuss a robot arm in motion.]
But generally speaking, revolutionary technologies have provided more benefits than harm to society, and we've always successfully navigated the risks. I think the same applies to AI. There are clear risks in letting machines take over human functions. But what is important to remember is that AI is meant to replace human prediction, not human judgment. So as such, I think that some type of regulatory framework makes sense. But it is a fine line and a fine balance between protecting society against possible AI threats and inhibiting new technologies before the potential is realized.
[Investor’s perspective]
I think we're still at early stages of development for generative AI, and there is a lot of noise in the near term. Practically every company claims to be incorporating generative AI into their products and services. So it's important to understand the value chain to determine which companies really benefit from generative AI and why. It's also important to be very selective in that process as performance is determined as much by what we don't own as what we do own.
So in the global technology funds, this is what we do.
[A screenshot of the webpage for the CIBC Global Technology Fund. A screenshot of the webpage for the Renaissance Global Science & Technology Fund.]
We follow a disciplined process to find these opportunities in a concentrated portfolio of stocks to generate alpha over the long term, while managing the risks in the near term.
[Talk with your advisor to learn more about
the CIBC Global Technology Fund
and the Renaissance Global Science & Technology Fund]
[The views expressed in this video are the views of CIBC Asset Management Inc. and are subject to change at any time. CIBC Asset Management Inc. does not undertake any obligation or responsibility to update such opinions. This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, it should not be relied upon in that regard or be considered predictive of any future market performance, nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this video should consult with their advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change. Any information or discussion about the current characteristics of this fund or how the portfolio manager is managing the fund that is supplementary to information in the prospectus is not a discussion about material investment objectives or strategies, but solely a discussion of the current characteristics or manner of fulfilling the investment objectives and strategies, and is subject to change without notice. You should not act or rely on the information without seeking the advice of a professional. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
CIBC Asset Management and the CIBC logo are trademarks of Canadian Imperial Bank of Commerce (CIBC), used under license.
The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc.
†©2023 Morningstar Research Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
[CIBC logo]
[The CIBC logo is a trademark of CIBC, used under license.]
How to understand and navigate market events
March 28, 2023
Featuring Michael Sager, Executive Director, Multi-Asset and Currency Management for CIBC Asset Management.
So I think it's important to emphasize that the banking system broadly is very robust, strong deposit base, strong regulatory
framework, a strong business models. That's particularly the case in Canada where the problems have arisen have been in
idiosyncratic pockets of the banking system. Regional banks in the US, for instance, where there have been a confluence of some mismanagement, a more volatile deposit base and also some shortcomings on regulation, but of course have led to capital flight or deposit flight out of several institutions which have led to a number of policy initiatives by central banks, the federal government in the US and then in Europe, in Switzerland, the arranged takeover of Credit Suisse by UBS Bank. Market expectations around central bank policy outlook have swung wildly over the past two weeks ahead of the financial volatility. Markets had been conditioned by the Federal Reserve to expect more interest rate increases with the onset of the volatility. Those expectations shifted to expect no more rate increases and actually a quick pivot to rate cuts. We think the truth lies somewhere in the middle. Markets have been too aggressive in pricing a pivot towards rate cuts. At the same time, we do expect growth to slow. We are looking for a mild recession to occur in the US, in Canada, in Europe over the next 12 months and that will slow inflation.
The inflation rate in the US and other economies will moderate over time. The question is how quickly. That suggests to us that central banks continue to focus on the importance of cooling inflation, reducing inflation back towards their target, but also being very cognizant that their words have great import for confidence in the financial system. In terms of specific opportunities, One that is particularly attractive right now is fixed income. Fixed income has had a difficult couple of years. When interest rates rise, bond prices fall. So that has been quite painful for investors in bonds. That situation has changed significantly with interest rates and bond yields much more attractive levels. This means that bonds can get back to playing their traditional role within a balanced portfolio as a counterweight to equities during periods of market volatility, but also as a standalone attractive source of return. So what does this mean for investor portfolios in normal market conditions? Trying to time market participation is difficult during periods of high volatility.
Timing markets is almost impossible. We think it really important to focus on long term fundamentals. Which asset classes have the most attractive of long term expected returns. So again, a focus on long term investment goals and objectives is particularly important during periods of volatility such as we're experiencing right now.
Benjamin Tal: 2023 Economic Outlook—Light at the end of the tunnel?
January 16, 2023
2023 Economic Outlook – Light at the End of the Tunnel?
[Soft music plays]
[Benjamin Tal, Managing Director and Deputy Chief Economist
CIBC Capital Markets Inc.]
Everybody is talking about inflation. But the reality is that at the end of the day, this is not
about inflation.
[Sheets of currency being printed. The Bank of Canada, in Ottawa. The Federal Reserve in
Washington.]
This is about the cost of bringing inflation down to 2%, which is the target. The Bank of
Canada, the Fed in the U.S., have established their reputation as inflation fighters. They are
not going to toss it away. Given a choice between a recession and inflation they will take a
recession any day. That's the reality.
[Sources of inflation]
The trajectory of inflation is important here. This trajectory is changing.
[An aerial view of a shipping dock. A person online shops on their phone. An aerial view of a
warehouse and shipping center.]
At any point in time, there are two sources of inflation, supply driven inflation and demand
driven inflation.
[A full warehouse. Bustling shipping docks. The Bank of Canada building. A timelapse of
downtown Toronto.]
What we are seeing more and more, is that the contribution of the supply driven inflation is
diminishing, which means that the supply chain is improving, shipping cost is down. And
that's actually extremely good, because it means that the Bank of Canada is becoming more
powerful in its ability to deal with the situation because more and more inflation is not
coming from the outside, but rather from domestic sources which the Bank of Canada can do
something about.
[Interest rates]
So, what's the next move?
[The Bank of Canada building.]
The Bank of Canada is now at 4.25% overnight rate. We think it's done. We think that's the
end of it. Maybe another 25 basis points if they have to, but we are, basically, extremely
close, maybe at the end of the hiking cycle.
The next question, of course, is what's next? When are you cutting? Usually, the lag between
the last hike and the first easing move is relatively short. This time we believe it will be
relatively long, maybe a year, maybe early 2024.
[The Federal Reserve in Washington. Sheets of currency being printed.]
Why? Because the Bank of Canada and the Fed have to make sure that inflation is dead
before they ease monetary policy.
[An aerial image of the Brooklyn bridge in the 1970s. A CIBC branch in Toronto in the 1970s.]
The last thing they want to do is to repeat the mistakes of the 1970s when monetary policy
was eased prematurely and led to another wave of inflation, and therefore, the double dip
recession of the early 1980s. They would like to avoid that and, therefore, they will wait until
inflation is dead before they cut.
And then when they cut by how much? Now, we started this saga at 1.75% overnight rate.
We are going to 4.25%, 4.5%. We rest for a year. And then cut––to where? I say about 3%. A
full percentage point, maybe more, above the rate we have seen before the crisis.
Why? Because in the background there are three inflationary forces that are putting pressure
on overall inflation.
[A low angle view of a Canadian flag in Ottawa. A full warehouse. A woman carries a box of
office supplies.]
We are talking about deglobalization. We are talking about Just-in-case inventories that are
replacing Just-in-time inventory. And clearly the labour market is much tighter now with
vacancy rates in the sky. And the target is the same target, still 2%. So, in order to achieve
the same target with more inflationary forces, by definition, interest rates have to be higher
and the new neutral rate, about 3%, clearly higher than what it was before the crisis.
[The risk of central bank overshooting]
What's the risk? Overshooting. To the extent that supply chain does not behave. To the
extent that we don't see a significant decline in the external source of inflation, that will lead
to a situation, in which the Bank of Canada will overshoot, will raise interest rates to 5%,
5.5%.
[The Bank of Canada crest. A person fills out a job application. People sit in a waiting room.]
That will take you to a real recession, with the unemployment rate rising significantly. Every
economic recession was helped, if not caused by a monetary policy error, in which central
bankers raised interest rates too much.
[The Bank of Canada building.]
At this point of the game, it seems that the Bank of Canada is getting it. They would like to
avoid this risk. Basically, stop at 4.25%. That's the main case scenario.
[The Housing Market]
Let's talk about the housing market now. The housing market is extremely sensitive to higher
interest rates than in any other time in history.
[An aerial view of houses in Toronto.]
It is slowing down. Is it a correction? Is it a crash? Is it a meltdown? In order to answer those
questions, we have to understand what happened to the housing market during COVID. We
know that prices went up by 46% in two years. The question is why? The answer is the
asymmetrical nature of the crisis. All the jobs that were lost were low paying jobs.
[An empty warehouse. A person reads a layoff notice. Apartment buildings in Toronto.
Homebuyers look at listings in the window of a real estate office.]
Young people, renters. That's why rent actually went down during the pandemic.
[A young couple looks at the front door of a house.]
At the same time, homebuyers and even potential homebuyers, their jobs were there. They
were assuming their income was there and interest rates were in the basement. So basically,
we have a situation in which, if you think about it for a second, homebuyers during COVID
got the benefit of a recession, vis-a-vis extremely low interest rates, without the cost of a
recession, vis-a-vis a broadly-based increase in the unemployment rate.
[A street view of a residential neighbourhood.]
There was a sense of urgency to get into the market. So, if you have a sense of urgency to get
into the market, you frontload activity. You borrow activity from the future. We are in the
future. This is not a freefall. This is not a crash. This is a reallocation of activity over time. We
frontloaded activity, now we are resting due to higher interest rates. That's a very positive
development. It's not over.
[A “For Sale” sign on a lawn.]
Now, this is the first correction ever, in which the supply resale activity is actually down.
Usually, you see supply listings going up when the market is correcting. This is not the case
now. Supply is down because people simply are worried about the overall situation, they are
not willing to list, and therefore, supply is down by 10% on a year-over-year basis. That's
protecting prices from falling further. I believe that will change in 2023 and 2024. We will
see supply rising because the fog will clear.
[An aerial view of houses in Toronto.]
But also, some people will be forced to sell given the huge increase in interest rates and the
shock that they will experience moving from variable rates to fixed rates or renewing their
variable rates. And therefore, I see further downward pressure in the housing market in
2023. However, it's not a crash, it's not a meltdown. It's a very healthy correction.
[An aerial view of houses. A plane lands at an airport. A woman waits for a ride at an airport.
A man holds up the Canadian flag. The Ukrainian flag flying over Kyiv. An agent shows a
couple a condo]
So, expect to see further declining sales and clearly declining prices, especially in the low-rise
segment of the market. At the same time, remember, the fundamentals of this market are
still very strong. This year alone, we got 700,000 new immigrants, plus non-permanent
residents, foreign students, and people from Ukraine. 700,000. None of them carries his or
her house on their back. The demand is there and what's happening to supply? We are not
building.
[An aerial view of houses in Toronto. The interior of a semiconstructed apartment.]]
One third of activity is being canceled or delayed because of the fact the cost is rising too
fast.
So, you don't have the supply coming. The demand is definitely there. You don't need to be
an economist to see what will happen two or three years from now. So, the fundamentals of
the market, the lack of supply, a lot of demand still there. But at the same time, the market is
now adjusting, basically reflecting the asymmetrical nature of this recession.
[This video is provided for general informational purposes only and does not constitute
financial, investment, tax, legal or accounting advice nor does it constitute an offer or
solicitation to buy or sell any securities referred to. Individual circumstances and current
events are critical to sound investment planning; anyone wishing to act on this document
should consult with his or her advisor. All opinions and estimates expressed in this video are
as of the date of publication unless otherwise indicated, and are subject to change.
The CIBC logo is a trademark CIBC, used under licence.
The material and/or its contents may not be reproduced without the express written consent
of CIBC.]
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[The CIBC logo is a trademark of CIBC, used under licence.]