Read this article and learn about:
- Applying new data sources to increase investment returns
- Related opportunities and threats for the buy side
- How to begin augmenting your investment process
Phil Tattersall, Director, EY
It is universally acknowledged that information is power and since time immemorial there has been a race for the power that an information advantage can confer. Venetian merchants used Galileo’s telescopes not to study the heavens, but rather to study the cargoes of approaching ships a few hours before their competitors. Recently, a range of alternative big data sources have emerged that offer this promise of an information advantage to the buy side. Right now, 31% of hedge funds are using alternative data and analytics in their investment process, while another 21% expect to adopt it in the next two to three years. Leading asset managers are following suit and have begun the journey of integrating new data sources into their investment process, to augment their existing fundamental analysis. In this article, we’ll consider examples of the big data sources that are now available, illustrations of their potential benefits, the barriers to realizing these benefits, and the consequent opportunities and threats for the buy side.
Traditional and alternative data
Traditionally, investment analysts have used a range of long-established data sources, such as company filings, earnings announcements, investor presentations, sell-side research, market data feeds and financial news. Now, in addition, there are many new alternative big data sources that can augment these traditional sources to provide new insights for the investment process. In the same way, there are many different types of alternative data: web, app and social media; satellite; location; email; local price and economic data; and credit card transactions, to name but a few. Potentially, each can provide new or earlier insights compared with traditional sources. Leading asset managers have recognized this opportunity and are acting.