As part of our recent advisory engagements, we have held extensive conversations and product demonstrations with leading financial services data vendors.
We met with product managers, product specialists, sales representatives and executives from firms such as Thomson Reuters, Markit, Bloomberg, Interactive Data, Moody’s Analytics, FactSet, Standard & Poor’s Capital IQ and other vendors to discuss their current offerings and future product roadmaps.It is very encouraging to see the array of new solutions coming to market that enable more effective investment decision-making.
Exciting new offerings are emerging that equip investment institutions of any size (even small niche players) to better leverage information to derive insights and drive decisions. The new offerings combined with a solid business analytics platform will enable firms to reach the maturity level of “analytical innovator” as defined in the MIT Sloan Management Review article “From Value to Vision: Reimagining the Possible with Data Analytics, “ March 2013.
We chose 3 solutions (out of many very exciting offerings) to describe the type of innovation happening on the data vendor side:
1) Sentiment Indicators
2) Factor Library Services
3) Cross-Media Linkage
Sentiment Indicators – New data products have been built to monitor emotional reactions and investor sentiment such as optimism, gloom, joy, fear, trust, anger, stress, urgency, and uncertainty. Emotional reactions and sentiment are reported regularly in the news and in social media posts.
The multi-dimensional psychological analysis focuses on emotions associated with specific countries, asset classes, currencies, and various economic sectors. Specific attitudes are expressed within stories and the data products track the macroeconomic themes that are most relevant to price movements in each asset class.
Sentiment indicators can initiate or complement specific investment ideas and hypotheses in a way not previously possible.
For example, real-time indicators can be incorporated into charting and alerting applications or in quantitative models to help support investment timing, asset allocation decisions, and hedging strategies.
Factor Library Services – Data vendors can deliver systematic stock selection and strategy signals to enhance excess return generation across asset classes. Factor library services are developed and maintained by external quantitative shops and delivered by data vendors as a feed.
The vendors’ research-driven rankings data extracts the most valuable investment insights from a wide variety of raw financial and industry-specific data sources. The factors cover a broad range of investment themes, specific industry configurations, and innovative cross-asset designs that appeal to every investment horizon.
Asset managers of any size can take advantage of quantitative analytics by outsourcing the data construction and the development of models. The analytics help uncover anomalies and differentiated selection strategies that investors can exploit to outperform the market.
This type of data enables portfolio managers, quantitative analysts, and researchers to improve and differentiate their strategies to gain insights into new sources of achievable alpha.
Multi-factor models can be executed on a historical basis providing signals as of a specific point of time and on a continuous basis with intraday or end-of-day (EOD) availability.
The models, in general, cover standard themes related to value, growth, liquidity, price momentum, earnings momentum, and macroeconomics. They also yield industry specific factors for airlines, banks, insurance, natural resources, and real estate.
In conjunction with performance analytics, a multi-factor analysis can enable an enhanced descriptive analysis and produce valuable and timely input for future investment ideas.
Cross Media Linkage – helps to connect the dots between data published in disparate media forms to provide a broad view on capital markets and iteratively explore investment opportunities and threats in a timely manner.
A lot of information is available from sources such as vendors, research, blogs, media, etc. Linking this information to derive timely investment insights is a massive undertaking.
A properly designed business analytics platform supported by the right vendors and technologies can provide such linkage. This can open up a whole new set of analytical opportunities such as evaluating past performance, predicting the future and explorative fact-finding via visual analytics. It takes a significant amount of time, manpower, and money to solve such a complex challenge.
Vendors have begun providing solutions that deal with this challenge on a smaller scale, while they continue increase the maturity of these offerings. In addition, market infrastructure providers and data vendors are investigating opportunities to create utility offerings that solve the issue on behalf of institutions as well.
Many innovative data products aimed at improving investment decision-making are coming on line or will be introduced in the near future. Exploiting these new data streams and managing the ever-expanding universe of potentially valuable information is both a massive challenge and opportunity for financial institutions.
Firms with a robust business analytics platform, a mature data management operation and a data-driven culture will be positioned to make the most of these new and powerful information sources to support investment decisions. While it is very exciting to see these powerful developments, taking advantage of these sophisticated analytical capabilities can only happen once the foundation – a functioning data management program covering all of these aspects – is in place. Now is the time to advance your data management capabilities to capitalize on these new analytical capabilities.
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The opinions expressed are as of March 2014 and may change as subsequent conditions vary