A multibillion-dollar business providing uncommon knowledge similar to satellite tv for pc imagery and measurements of social media sentiment is having fun with a growth in demand as hedge funds and firms hunt for clues on the best way to deal with the coronavirus disaster.
Many traders have turned to so-called various knowledge — area of interest info past customary monetary market indicators or statistical releases — after discovering official numbers too gradual in reflecting the collapse in financial exercise resulting from Covid, and the restoration. Suppliers argue it may present treasured, real-time glimpses into how an organization or economic system is faring.
“Completely, undoubtedly, during the last six months the demand has skyrocketed,” stated Hinesh Kalian, director of knowledge science at hedge fund agency Man Group, which shepherds $104bn in property. “There was a rise in various knowledge suppliers approaching us, and a rise in our funding crew’s curiosity in these knowledge units.”
Michael Spellacy, world head of capital markets at consultancy Accenture, stated hedge funds had profited this yr from strategies similar to evaluating social media posts in China with Chinese language authorities statements to gauge the extent of the virus’s influence, in addition to gathering knowledge on the motion of Chinese language container ships to observe exercise. “On this explicit disaster, it’s turn out to be extraordinarily useful,” he stated.
Different knowledge just isn’t a brand new idea. Retailers in historic Babylon measured the depth and stream of the Euphrates river to attempt to get an edge of their buying and selling, after discovering a correlation with the availability of commodities, based on Andrew Lo and Jasmina Hasanhodzic’s The Evolution of Technical Evaluation.
Nonetheless, the sector got here to widespread consideration a number of years in the past throughout an investor craze for computer-driven buying and selling funds.
Even earlier than coronavirus struck, whole annual spending on such info by fund managers alone was predicted to achieve greater than $1.7bn this yr, up from $400m three years in the past, based on Alternativedata.org. There are almost 1,500 suppliers of different knowledge, based on Neudata, one other vendor of such info, which says it has been round 4 instances busier than regular dealing with consumer queries in March, April and Might.
BNP Paribas Asset Administration now spends about 10 per cent of its market knowledge finances on various sources, up from an “insignificant” quantity 5 years in the past, based on chief govt Frédéric Janbon. The €400bn-in-assets agency stated monitoring Covid-19 an infection indicators, such because the replica or R quantity — which measures how rapidly the virus is spreading — and real-time power consumption proved helpful this yr.
Typically, the sources are conventional however the technique of analysing them is new. In June, Swiss funding agency Unigestion started utilizing sentiment alerts from a “newscaster” that reads media articles from suppliers such because the Monetary Instances and analyst notes in its funds, after discovering it improved the efficiency of its mannequin portfolios throughout the coronavirus disaster. “It permitted us to get out of equities sooner and permitted us getting [back] into equities sooner,” stated chief govt Fiona Frick.
Asif Noor, fund supervisor at hedge fund Facet Capital, has been a believer in various knowledge for a number of years however says the expertise of latest months has “solidified that view”.
Its news-reading algorithms noticed weakening sentiment on the Norwegian krone, which strikes with oil costs, in mid-February. By the top of the month its Systematic International Macro fund had gone brief the forex in opposition to the greenback, and it constructed this place into early March. It then profited because the oil worth dropped and the krone slumped, pushing the greenback up from NKr9.2 krone per greenback on March 6 to above NKr12 on March 19.
Nonetheless, some managers query how usually various knowledge can result in successful bets, even when it does spotlight an financial development.
“Extra knowledge that’s extra unstable and shorter-term could not at all times show useful to generate worthwhile trades,” stated Michiel Meeuwissen, co-head of different methods at Kempen Capital Administration in Amsterdam. “Frequent sense can at instances be as robust or stronger,” he added, giving the instance of selecting sectors to wager in opposition to in mild of the Covid disaster.
There are many blind alleys, traders say. Social media posts concerning the virus outbreak in Wuhan could seem helpful however are sometimes not geocoded — which means they lack location knowledge — which makes it laborious to find out whether or not the posts come from people who find themselves actually there. Jeremy Brunelli of UBS’s Proof Lab started to research utilizing CCTV knowledge within the Metropolis of London to observe the influence of virus restrictions, however discovered he couldn’t course of the information rapidly sufficient earlier than occasions moved on.
Anthony Lawler, head of GAM Systematic, stated his agency used various knowledge however added that such info had not been behind his funds’ features final yr, nor had it pushed markets this yr.
“Day by day bank card knowledge or footfall knowledge didn’t lead the restoration in [stock] costs. What led the restoration was investor sentiment, animal spirits and a perception in a greater future,” he stated. “For none of that might you utilize revolutionary photographic, bank card or transport knowledge.
“We stay of the view that various knowledge is creating worth for the information suppliers, however not but the traders.”