What Artificial Intelligence means for Your KiwiSaver account

Many of us think about artificial intelligence (AI) and reflexively visualise robots and self-driving cars – but AI's scope is much broader than that, encompassing machine learning (ML), where a computer programme improves automatically through experience. The application of AI and ML to the financial sector – and virtually every industry – changes the approach to investment management and the potential outcomes for those with long-term and retirement savings plans. Crucially, it also influences how appealing a given company or sector is as an investment proposition, because AI is proving such a revolutionising force in how business is being done.
 
For New Zealand's 3.25+ million KiwiSaver investors, AI and ML can provide valuable insights into market trends and investment opportunities, analysing vast amounts of data in real-time, identifying patterns and trends that would be impossible for a human to spot. This can be particularly beneficial for those of us who invest in overseas tech stocks. These markets can be volatile and complex, but AI can help us navigate them more effectively to make more informed decisions, reduce risks, and potentially increase returns.
 
Smart application of AI is critical for SBS Wealth as a customer-facing investment management business, and we have already used it to automate our onboarding for KiwiSaver and for managed funds for our own client base, and it is now supporting our operational services with clients, including our communications platform, and to build out our digital distribution capabilities. AI has many uses in the marketing industry, and it is proving helpful in our own branding work.
 
There are other good reasons those of us in the investment management sector are paying close attention to AI: it is driving wealth creation. McKinsey estimates that generative AI, because of its impact on productivity, could add up to US$4.4 trillion annually to the global economy. This colossal figure indicates AI's potential to redefine value creation across sectors. And trust in AI's growth is at an all-time high, with almost half of organisations increasing their AI investment budget. It's an emphatic vote of confidence in AI's ability to deliver robust returns.
 
Across the board, balanced and growth-focused KiwiSaver funds have considerable exposure to multiple industries and international companies, and how these industries are affected by AI has ramifications for investors. So what are the top five sectors that are significantly affected – both positive and negatively – by AI?
 
1. Energy.
AI has driven digitalisation efforts across the energy industry, leading to more optimised operations with greater efficiency and sustainability. It has the potential to increase asset productivity by up to 20% and reduce overall maintenance costs by up to 10%.
 
2. Healthcare.
AI has been instrumental in healthcare, especially since the pandemic. It has been used for outbreak forecasting, streamlining patient care, and providing more holistic insights into valuable data. It is also enhancing predictive analysis accuracy, streamlining administrative operations, and supporting more cognisant procedure recommendations and patient screening practices.
 
3. Transportation and logistics.
One of the main industries currently affected by AI, we have already seen the emergence of self-driving cars, and completely autonomous cars are likely to be adopted as the hardware becomes more sophisticated. Automated fleets of autonomous vehicles are being developed in partnership with major US consumer-facing businesses such as Walmart, and the use of autonomous vehicles has been shown to cut logistics-related costs by as much as 30%.
 
4. Retail.
In the retail industry, AI can be used to collect and analyse consumer data, allowing companies to make more informed decisions about stocking merchandise, determining pricing strategies, and creating customised advertising campaigns. AI-powered chatbots can provide customers with an enhanced shopping experience, providing personal product recommendations based on past purchases and even giving feedback on ordering process and delivery times. AI is also making it easier for retailers to detect and prevent suspicious activity or fraudulent transactions. 
 
5. Construction.
AI has numerous applications for the construction industry, from advanced safety management to better design of buildings through generative design, prevention of cost overruns, productivity improvements, and mitigating labour shortages.
 
Across the board, the negative or risk factors to manage around AI and investment considerations generally centre on data privacy and security, the possibility of AI systems being used maliciously or algorithmic biases causing discrimination (the latter has been identified as a particular risk in the healthcare sector), and job displacement due to automation.
 
Though AI can automate many of the time-consuming tasks associated with managing a KiwiSaver account and create time for fund managers to focus on other aspects of client services, investing in AI – either as a business or in terms of share allocation decisions – doesn't mean abandoning traditional investment principles. The fundamentals of investing – diversification, long-term planning, and regular contributions – remain as important as ever, as does critical analysis of the projected long-term value of any large-scale investment in AI and ML by sectors and large companies.
 
New Zealand investors and investment managers alike are singular for our innovative approach and our ability to find unexpected answers to old problems. The view of many in the investment management sector is that AI can complement this mindset, helping to make smarter investment decisions and get the most out of KiwiSaver funds.
 
Why AI represents an exciting opportunity for KiwiSaver investors is not because human judgement will be replaced with machine learning or thinking, but because we are getting savvier all the time about how to use advancing technology to enhance our decision-making capabilities. As we continue to embrace AI, I'm confident that we'll be able to navigate the complexities of the investment world with the human brain – but with greater ease and confidence thanks to tech enhancements.

Disclaimer: This is a simplified explanation and the actual impact of AI on KiwiSaver accounts may vary. Always seek professional advice before making any investment decisions.