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February 22, 2017  

Vendor Engineers Virtual Portfolio Manager

A stock-research shop that caters to thousands of traders and investors has developed an artificial-intelligence program with hedge funds in mind.

The San Diego vendor, Trade Ideas, is positioning the new product as a virtual equity portfolio manager that hedge fund operators can adopt to expand their mix of strategies or supplement the efforts of human traders. The program, dubbed Holly, applies machine-learning technology that sifts reams of market data at the end of each trading day and crafts strategies that can be executed the following day.

The first hedge fund manager to “hire” Holly is San Diego-based Sunrise Capital, a 37-year-old commodity-trading advisor that sees the technology as a relatively easy and inexpensive way to add an equity component to its fund. “We like it because it takes us into something we don’t really do,” said Sunrise chief operating officer Jarod Winters. Sunrise has $700 million under management.

With Trade Idea’s help, Sunrise electronically linked Holly to a broker-dealer last month. For now, the program is trading a simulated portfolio, but Sunrise soon hopes to allow Holly to manage a real account. “It’s promising,” Winters said.

Sunrise is paying Trade Ideas a fraction of what it would cost to hire a live quantitative-equity portfolio manager.

Meanwhile, Trade Ideas is offering Holly to other hedge fund managers, mostly small and mid-size operations looking for cost-effective ways to incorporate artificial intelligence into their trading programs. The firm, founded by chief executive Daniel Mirkin, chief technology officer Philip Smolen and chief strategist David Aferiat, is best known for selling quantitative stock research to some 8,000 day traders, financial advisors and hedge fund managers.

Trade Ideas’ data scientists created Holly by applying machine-learning techniques to the firm’s core quantitative-research offering. Running a simulated portfolio, Holly generated a 52% return last year — net of fees and typical commissions — versus a 5.5% increase for the HFRI Fund Weighted Composite Index and a 12% gain for the S&P 500 Index.