A Case Study of Next Portfolio Prediction for Mutual Funds

TL;DR

This paper explores predicting future mutual fund portfolios as a novel recommendation task, revealing the challenges and potential of specialized models for identifying new investment items.

Contribution

It introduces the NNBR task for mutual fund portfolio prediction, creates a benchmark dataset, and evaluates recommender models, highlighting the difficulty of predicting novel items.

Findings

Predicting novel items is more challenging than predicting entire or repeated portfolios.

Autoencoder-based models outperform heuristics in predicting new items.

State-of-the-art models struggle with the complexity of the NNBR task.

Abstract

Mutual funds aim to generate returns above market averages. While predicting their future portfolio allocations can bring economic advantages, the task remains challenging and largely unexplored. To fill that gap, this work frames mutual fund portfolio prediction as a Next Novel Basket Recommendation (NNBR) task, focusing on predicting novel items in a fund's next portfolio. We create a comprehensive benchmark dataset using publicly available data and evaluate the performance of various recommender system models on the NNBR task. Our findings reveal that predicting novel items in mutual fund portfolios is inherently more challenging than predicting the entire portfolio or only repeated items. While state-of-the-art NBR models are outperformed by simple heuristics when considering both novel and repeated items together, autoencoder-based approaches demonstrate superior performance in predicting only new items. The insights gained from this study highlight the importance of considering domain-specific characteristics when applying recommender systems to mutual fund portfolio prediction. The performance gap between predicting the entire portfolio or repeated items and predicting novel items underscores the complexity of the NNBR task in this domain and the need for continued research to develop more robust and adaptable models for this critical financial application.