Yewno: AI and big data in structured products

Following his appointment as CEO of Yewno earlier this month, succeeding founder Ruggero Gramatica, SRP spoke to the former global head of sales at Qontigo, Roberto Lazzarotto, about how the Palo Alto-based firm is seeking to help ‘uncover the undiscovered’ through its new inference engine, and its application in the structured products market.

Yewno is a start-up with six years in the market offering its inference engine to enhance human understanding by correlating concepts across vast volumes of sources.

We are changing fundamentally the way that artificial intelligence is perceived and used in investments - Roberto Lazzarotto

With Lazzarotto’s appointment the firm is entering a new phase of development.

“The growth prospects for the company are enormous,” says Lazzarotto (pictured).

The company operates in various verticals (education, financials, publishing) - the technology and the products it offers have been validated by users, and institutions such as Stanford University or Universita Cattolica in Italy, but also in the financial segment as the company is serving a number of blue chip clients ranging from Citigroup to Moody’s or Bank of America.

Artificial intelligence is perceived as something that is directed against the retail consumer, because it is commercially used to say that it creates a better experience for them, but in reality, it locks them into a framework that a company is pushing to capture them, according to Lazzarotto.

“We are changing fundamentally the way that artificial intelligence is perceived and used in investments. We believe AI will change the course of the investment proposal going forward.”

In the investment world, Yewno positions artificial intelligence as a way to creating an experience where the client discovers new opportunities and horizons to open up for investors.

“It's a completely different philosophy and approach,” says Lazzarotto. “In the past, there was this perception of a black box as explaining why a certain result was obtained was complicated. But that has changed and there are ways to assess and understand the benefits of AI.”

Data framework

Yewno uses the ‘Knowledge Graph’ data framework which offers a representation of the various concepts with their ramifications and connections, so the roots of the reason to explain why something exists as part of an output can traced back.

This framework “offers total transparency and everything is explainable”.

One of the difficulties index providers have is that they have to navigate through many databases, which are not necessarily clean and have inconsistencies that create a lot of issues, according to Lazzarotto.

“When you consider big data, you have the same problem as the web and other sources are full of uncleaned data, he says. “We want to change that perception too. The data inputs into the Knowledge Framework are unbiased, which makes the outcome reliable, and doesn't need to be re-crunched and reprocessed to separate the good from the bad. All those elements will change the way that investments will be done going forward and use of AI will move from niche to the mainstream fairly quickly.”

Structured products

Yewno has a number of partnerships to deliver content that is used to create new investment strategies and indices with index providers supplying underlyings to the structured products market such as Nasdaq, Stoxx and Solactive.

“Index providers offer a regulated framework and the kind of stability that is relevant for investors, but what matters in an investment is content and that’s the added value we offer,” says Lazzarotto.

Indices such as the iStoxx AI global index and Nasdaq Yewno Global Innovative Technologies Ex EUR ER 5% Index are based on universes created by Yewno, and have been deployed by structured products providers in different markets.

There are 52 live products linked to underlyings powered by Yewno’s framework worth more than US$200m including the Nasdaq Yewno Global Innovative Technologies Ex Disputable Index (seven products/US$10.30m), Nasdaq Yewno Global Innovative Technologies ER Index (eight products/US$18.88m), Nasdaq Yewno Global Innovative Tech Ex Idx EUR ER 5% Index (18 products US$104.68m), and Nasdaq Yewno Global Innovative Tech Ex DA EUR ER Index (four products/US$23.71m).

“We create the investable portfolio and the index provider performs the calculation,” says Lazzarotto, adding that some the most successful next generation thematic ETFs based on some form of artificial intelligence, are tracking baskets engineered by Yewno including the Amundi Stoxx Global Artificial Intelligence UCITS ETF (GOAI FP) on Euronext Paris and Xtrackers Future Mobility UCITS ETF (XMOV GY) which track the Nasdaq Global Yewno Future Mobility Index.

Altogether Yewno has US$1.2 billion in assets gathered in structured products and ETFs.

“In terms of performance, one of the other great things with artificial intelligence is that it will always deliver a substantial over performance compared to a traditional approach, says Lazzarotto. “Indexing continues to be a driver of innovation and we already see artificial intelligence and machine learning being used to develop strategies that can navigate market turmoil and deliver yield.”

Yewno’s core offering is data. The second element is the inference engine which powers the overall ‘Knowledge Graph’ and allows the creation of inferences across millions of concepts – the engine does not make searches based on text words, but on concepts.

“We offer an absolutely unbiased and reliable dataset,” says Lazzarotto. “That makes a huge difference because you offer the granularity needed to build a picture. The reliability of the data feed, the concept-based approach and the transparency we offer is a differentiator for us.”

Beyond information

Lazzarotto notes that Yewno’s ‘Knowledge Graph’ brings knowledge and not just information, which is the direction to take, where the industry will necessarily have to go.

We’re product agnostic but there are a number of instruments and wrappers that come to mind whether it is a structured product or an ETF - Roberto Lazzarotto

“That’s a key part of our offering - we don't have just algorithms that eventually help you to detect a specific signal based on some stock energy, on volatility, etc.,” he says. “On top of that, we offer a discovery across unstructured data that it can be used and applied directly – it provides knowledge on specific concepts and themes which is what drives investments beyond quant and fundamental research.”

Lazzarotto also believes that new areas of growth - new industries and segments, new businesses, megatrends, will be detected and classified through the firm’s ‘Knowledge Graph’ framework.

“These themes will be identified and enhanced by our framework. We think we will move into a new sector classification based on the knowledge graph, and that's another very powerful use of artificial intelligence in the investment world.”

Yewno is also seeking to strengthen and develop partnerships with index providers to bring to market new investment ideas via structured products.

“We can provide very powerful content and the calculation around can be performed by anyone,” says Lazzarotto. “We see scope to expand our existing partnerships and we believe the increase in usage of artificial intelligence will influence the entire ecosystem.

“We’re product agnostic but there are a number of instruments and wrappers that come to mind whether it is a structured product or an ETF.”

Trading desks will be able to benefit from Yewno’s data because they have to hedge their products but they will also be interested in the signalling of anomalies and the detection element that the Knowledge Graph will be able to provide - the dividend crisis we faced last year would have been navigated much better if we had the signals flagging the issues in the dividend side at the time.

“The Knowledge Graph technology will enable trading desks to leverage artificial intelligence for risk management purposes, and to hedge their exposures thanks to concept-based models,” says Lazzarotto. “We think that research and advisory departments will be large beneficiaries as well.”

Going forward

Yewno is a US-based firm but it has a global footprint. The firm’s goal is to continue expanding its client base and international footprint.

“There is much more that we can do and we might do in terms of playing our role in bettering the market, obviously for the sake of having a commercial impact for the company but also with the purpose of making AI mainstream - we want to play a pioneering role to promote artificial intelligence and take it out of the shadow. That is the ambition and will be the main strategic focus,” says Lazzarotto.

“We will continue our reach outs in the financial segment to help foster innovation as well as the non-financial segments, where Yewno is also present and has proven its worth.”