Human vs. Machine: Navigating the Future of AI-Driven Investing

Part 3 in the AI Learning series.

The landscape of investing is undergoing several transformations, powered by artificial intelligence and automation. Terms like robo-advisors, robo-trading, and AI-managed funds are becoming more common, but they’re often used interchangeably—even though they refer to distinct technologies and strategies.

In the last article, we explored several real-world use cases for AI. In this one, we will take a deeper look into one particular use case: investing (fund management and stock trading).

Understanding the Differences: Robo-Advisors, Robo-Trading, and AI Investing

AI-driven investing platforms, including both robo-advisors and robo-trading systems, use algorithms and machine learning to enhance decision-making in financial markets—but they serve distinct roles.

• Robo-advisors are automated platforms designed for long-term portfolio management. They evaluate a user’s goals, risk tolerance, and time horizon, then create and maintain a diversified investment strategy—automatically rebalancing as needed. These tools offer low-cost, passive wealth-building solutions that require minimal human involvement.

• Robo-trading, on the other hand, refers to active, algorithm-based trade execution. These systems operate in real time, responding to technical indicators, market signals, or even news feeds to place trades with speed and precision. They're common in hedge funds, proprietary trading firms, and high-frequency trading operations.

• Both fall under the broader category of AI-powered investing, where artificial intelligence analyzes vast and diverse data sources—market trends, sentiment, macroeconomic data—to reduce human bias, adapt dynamically, and uncover opportunities faster than traditional methods.

A Brief History of AI in Investing

While AI has only become relevant to the public in recent years, algorithmic automated trading has been around for a while.

• 1990s – Algorithmic trading emerges in institutional finance.
• 2000s – Improved computing power enables more advanced quantitative models.
• 2008–2010 – The global financial crisis catalyzes demand for low-cost, transparent investing.
• 2015–2020 – AI capabilities like natural language processing and predictive modeling are integrated into investment platforms.
• 2020s–Today – AI-driven investing becomes mainstream across retail and institutional finance, enhancing both long-term advisory and short-term trading strategies.

AI-Managed vs. Human-Managed Funds: Pros, Cons & Caveats

As these technologies mature, some investors may wonder: "Should I trust my money to an AI, or a seasoned fund manager?"

Because the answer to this is so nuanced, one that requires deep expertise and more than just a side-by-side comparison, I will simply suggest discussing this with a financial advisor; however, you should consider that…

• AI is not perfect. While fast and data-rich, AI systems can fail in unprecedented market conditions or suffer from poor-quality data or overfitting. 
• Humans aren’t infallible. Even top-performing managers can take missteps, and active management may not always justify higher fees.
• Hybrid approaches exist. Some funds blend AI-driven models with human oversight—offering the best of both worlds.

Because we are talking about automatic trade mechanisms, there is a topic that I believe is worth mentioning “Bot Panic”.

Flash Crashes or Algorithmic Feedback Loops (aka “Bot Panic”)

What It Is:

This occurs when multiple automated trading systems (bots) respond to rapid market movements or anomalous data in a self-reinforcing loop. One algorithm might detect a drop and sell, triggering another algorithm to interpret the same movement as a trend—and also sell. This cascade effect can spiral into a sharp, short-term market crash, often disconnected from underlying fundamentals.

Real-World Example:

The most notable case is the 2010 Flash Crash, where:

• The Dow Jones Industrial Average plunged nearly 1,000 points in minutes before rebounding just as quickly.
• It was largely attributed to high-frequency trading algorithms reacting to large orders and market signals in rapid succession.

Why It Happens:

• Speed with no oversight: Bots react in microseconds, without human judgment to step in.
• Lack of context: Algorithms may misinterpret large trades or volume changes as signals of deeper market trends.
• Herd behavior at scale: Once a critical mass of bots “agree” on a signal, the movement amplifies.

AI’s Role:

In more recent years, AI-enhanced systems (as opposed to pure rules-based bots) have been trained to recognize these feedback loops—and in some cases, even pull back or throttle activity in volatile moments. However, model opacity and the increasing complexity of AI systems make it harder to fully predict how they’ll behave in extreme scenarios.

Risk Mitigation:

• Circuit breakers (temporary halts in trading) have been put in place on most major exchanges to give humans time to assess situations.
• Model throttling and confidence thresholds are now built into some AI-trading systems to prevent blind overreaction.
• Hybrid oversight models that combine AI with human control are increasingly preferred, especially in institutional settings.

All of this is to simply highlight that while AI and robotic rule based trade systems are increasing in use and in ways to mitigate risk, as well as having real value for investors, there is still a need to keep humans in the loop.

How to Tell If a Fund Is AI-Managed

While AI is increasingly used in fund management, it's not always obvious when artificial intelligence or algorithmic decision-making is involved. Here are five reliable ways to investigate whether a mutual fund or ETF leverages AI or "robo-based" strategies:

First, a Key Distinction

It’s important to differentiate between funds that are AI-managed and those that use AI to support analysis. Many human-managed funds incorporate machine learning tools, quantitative models, or algorithmic screening to assist with research and identify trends—but final decisions are still made by people.

In these cases, AI serves as a supporting mechanism, not the primary manager. Just because a prospectus mentions terms like “quantitative” or “model-based” doesn’t mean the fund is fully AI-managed. To truly understand the fund’s approach:

• Read the prospectus in full.
• Look into how decisions are made—by humans, models, or both.
• Review the firm’s published investment philosophy and methodology.
• When in doubt, work with a trusted financial advisor or wealth manager who can help interpret the nuances and assess whether the strategy aligns with your goals.

1. Check the Fund Prospectus

The fund’s prospectus, a regulatory disclosure required by the SEC, outlines the fund’s strategy and management style. Look for indicators such as:

• Actively managed vs. rules-based (rules-based often implies automation)
• References to:
• Systematic strategy
• Quantitative model
• Algorithmic trading
• Machine learning or Artificial Intelligence

Use AI to help. Prospectus documents are long and very detailed; it is easy to miss something. So, take a look but then drop the document into your favorite LLM and ask it to see if it can find any of the key search terms related to AI. You could also ask it to just check the document and give a likelihood or determine if it is managed by AI.

2. Review Morningstar Reports

Morningstar doesn’t have a specific tag for “AI-managed” funds, but you can find clues:

• In the “Management” or “Strategy” sections, watch for mentions of quant-driven or systematic processes.
• Look for smart beta or factor-based strategies—often supported by algorithmic logic.

3. Visit the Fund Provider’s Website

Fund companies frequently publish fact sheets, whitepapers, or methodology overviews that explain how the fund is managed. If AI is central to the strategy, it’s often highlighted as a unique selling point.

If the fund is sub-advised be sure to look at their website as well.

4. Search the Fund Name or Ticker Online

Try search terms such as:

• "Fund Name" + AI
• "Ticker Symbol" + systematic strategy"
• "Managed by robo-advisor"

Articles, interviews, or fund reviews often reveal the use of AI or automation, even when it isn’t clearly stated in the official materials.

5. Ask a LLM about the fund.

Final Thoughts

Technology continues to shape the financial industry, and AI certainly can be applied to various use cases from "robo-advising" and fraud detection, to active research & advisor support. But with AI's need and influence, human expertise still holds vital ground, especially when markets get unpredictable or investors need guidance rooted in experience and judgment, in both the markets as well as in the understanding of their clients needs.

Just as importantly, investors should be aware that the presence of AI-related terms does not always mean a fund is AI-managed. Many traditional funds use AI tools in a supporting role. Before making assumptions—or investments—it’s wise to read thoroughly, ask questions, and  consult a financial advisor you trust, someone who can help clarify how a fund is actually managed.

Whether you lean toward machine intelligence, human judgment, or a combination of both—understanding how these models work will empower you to make more confident, future-ready decisions.

Key Technical Terms:

• Machine Learning: Enables systems to learn from data and improve decision-making over time.
• Natural Language Processing (NLP): Allows platforms to analyze news, reports, and other textual data for market sentiment analysis.
• Predictive Analytics: Forecasts market trends and asset performance to inform investment strategies.
• Algorithmic Trading: Executes trades based on predefined criteria without human intervention.
• Risk Assessment Models: Evaluates the risk profile of investments and adjusts portfolios accordingly.
• Data Aggregation Tools: Collects and consolidates financial data from various sources for comprehensive analysis.

Do you have any questions about the information that was shared? What technical challenges are you seeing today that could use strategic support?

If you liked this article, please follow me (James McGreggor) on LinkedIn and Medium.  I will continue to dive deeper into AI and Web 3.0, exploring use cases in various industries.

Thanks for reading!

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Author's Note

This article was created through a process that leveraged generative AI to facilitate grammatical and organizational refinement to ensure clarity, correctness, and logical flow; all content and ideas were provided by the author, with the initial and final drafts being fully edited by the author.