Though data has been a buzzword in the investment world for years, new and unique types of data have the potential to add value to both quantitative and fundamental investment models, according to a new report by Greenwich Associates.
Looking at less traditional, or alternative, forms of data is becoming more interesting to active asset managers struggling to beat their passive competitors, the report found.
To find alternative data, there are four main sources. Web-scraped data uses information publicly available on corporate websites. An example would be tracking prices and inventory on public retail websites to see how certain products are doing.
Crowd-sourced data conglomerates opinions using platforms where many people share personal insights. Another source, tracking social media sentiment, is becoming more well-known as an alternative data strategy.
“More people saying positive rather than negative things about a stock on Twitter can indicate the stock price will go up,” the report said. “Although this type of alternative data has been widely adopted, it continues to provide value.”
But there’s some concern, it added, that as these data methods become more popular, the amount of alpha they generate could be diluted.
The final source is data sets collected from credit cards and point-of-sale systems, which can provide insights, either by firms working with a group of consumers who’ve agreed to share information or by connecting directly with technology companies that facilitate retail payments.
While these and many other strategies differ significantly in popularity, the one most asset managers surveyed for the report said they plan to use was web search data, at 26 per cent, while 12 per cent said they use it already.
Other sources of data included weather, ocean vessel tracking, app installs and satellite imagery.