[With all the discussions on alternative data lately, the Institute for Innovation Development decided to tap into one of our Founding Innovator member firms to spotlight what is going on in this area. We asked Sean Brown, CEO of YCharts – the fintech platform that has become the Swiss Army Knife of investment research – about the potential of alternative data sets in investment research and to discuss their efforts in this space. Is this an example of better research that leads to smarter investments and higher investment returns?]
Alternative Data Sets Enable Smarter Investments
by Sean Brown, YCharts
Better research does lead to smarter investments and higher investment returns. The team at YCharts firmly believes this to be true.
YCharts is constantly evolving in the way it provides investment-based data intelligence to clients. As a firm that is constantly in touch with our customers, the team knows at the macro and the grassroots level that “alternative data” is making waves in the financial services industry and that investment managers and traders desire more, and better, data and tools. However, YCharts has seen that data providers have not been able to keep pace with the unquenchable demand for data that might serve as leading indicators for price movements of securities or markets.
Alternative data is not just a trend
Modern trading technology enables investment firms to store multiple data sources in the cloud, and then ingest and digest that data to develop actionable insights or hypotheses. They can then backtest strategies against historical datasets to develop their trading “alphas.” While access to alpha-generating data is still expensive, technology advancement has helped pull pricing out of the stratosphere. The profile of enterprises able to harness mass amounts of financial data has changed; what was once only accessible for the biggest, most profitable trading entities is now within reach of much smaller groups, who can quickly see the ROI of datasets.
Today’s investors are looking at everything from satellite images of store parking lots, to trending topics on social media, to store promotions, to product release dates, to trade show participation as leading indicators of market movement. For these investors, the approach to doing “great research” has morphed from just reading all available analyst reports to taking a methodical approach to combining potential sources of insight to reach objective, statistically-based conclusions and make smarter decisions. It’s imperative for investment managers to constantly be on the lookout for data streams that can lead to smarter investments.
“Just as cloud computing is on its way to being called simply ‘computing,’ private company, social media, and satellite data, among others, will also soon lose their ‘alternative’ label,” wrote Kevin McPartland, Head of Research for Market Structure and Technology at Greenwich Associates, in his recent Alternative Data for Alpha report. “That said, each of the data sets and others will also evolve, constantly improving in an effort to provide edge to those willing, able and informed enough to utilize the information.”
Investment managers need good data sources
Consolidation among RIAs is putting pressure on active managers to outperform passive strategies and demonstrate quantifiable value to their clients. The law of supply and demand is bound to force out the underperformers, as it does in every industry. A bad restaurant or dry cleaner often leads to a short enterprise life span. With investments, those who are able to utilize technology to find the patterns that may not be apparent to the human eye will see their client base grow and assets under management continue to climb along with it.
The previously mentioned Greenwich Report revealed that more than 60% of asset managers who participated in the study believe alternative public company data provides the greatest edge, while nearly 70% favor private company data.
As an example, the thirst for high-quality data for traditionally difficult-to-find forward-looking events from both private and publicly traded companies is higher than it has ever been. With YData, YCharts has created a solution that can provide additional, actionable data intelligence for investment managers.
With a plethora of data available on the web, we were frustrated to find that it's still difficult to get access to much beyond fundamentals and pricing data from the major financial data vendors. While events like highly anticipated product releases, or key regulatory milestones often have a profound effect on a company's stockprice, a comprehensive,highly structured database of all forward looking events has been nearly impossible to find.
The Corporate Events data feed available in YData pushes the boundaries of alternative data with an “augmented machine learning” system that monitors tens of thousands of sources where new events are announced. Proprietary machine learning algorithms pull pertinent event information from these sources, and a dedicated team then reviews the data to verify if the data found by the algorithms is correct. Because different companies have unique ways of categorizing events, YCharts saw it as critical to add a layer of human validation and scrubbing to create more accurate datasets.
With a clean and trustworthy dataset, investment managers can take advantage of intelligence on nearly 2,500 companies with YData’s Corporate Events data feed, including:
● Product launch events, press conferences, webcasts, and release dates for video games, movies, electronics, etc.
● Scheduled or estimated data releases (like airlines’ PRASM), monthly retail sales results, brokerage activity metrics, etc.
● Special “business update” calls & events (concerning pending M&A, spin-off, etc.)
● Company-hosted events and conferences
● Industry & investment bank conferences
● Earnings releases & conference calls, shareholder & board meetings, analyst & investor days
Armed with event-related data that could be used by itself or in conjunction with other data sources for insights, investment managers that leverage YData have the opportunity to mine for insights that may be leading indicators to market makers or help validate current strategies. With better research leading to smarter investments and higher returns, YData provides investors with the intelligence needed to build strategies that generate alpha.
YCharts is a financial data and investment research platform that provides investors with comprehensive data, powerful visualization tools, and advanced analytics. Industry professionals use YCharts for idea generation, analysis, alerts and updates from real-time news feeds to monitor the markets. YCharts has quickly become the go-to fast, intuitive, cost-effective financial research platform on the market. For more information, visit ycharts.com
About Institute for Innovation Development
The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors - Pershing, Voya Financial, Ultimus Fund Solutions, Fidelity, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines). For more information click here.