Event recap: Integrating alternative data into fundamental investing strategies
While quantitative managers have been using alternative sources of data for as long as quant investing has been around, fundamental investors have only started exploring the space in a systematic way in the last 5-10 years. On Thursday, Neudata brought together over 160 virtual attendees at its latest Deep Dive event, in partnership with Morgan Stanley, to discuss the issues and opportunities that fundamental investors face when using alternative data.
Up first, Todd Castagno and Anton Pepe at Morgan Stanley explained their risk-reward framework and delved into how investors could use fundamental data in their investment strategies. If you’d like more information about that presentation, please reach out to us at [email protected].
Next, Dysrupt Lab’s Frederik Bossaerts and Karl Mattingly presented on how prediction markets faced during “emerging unknowns”, or instances of event-based or geopolitical uncertainty. Two of those “emerging unknowns” that they discussed included COVID-19 and the results of last year’s US elections.
Giuseppe Paleologo then discussed key topics from his upcoming book: Advanced Portfolio Management: A Quant’s Guide for Fundamental Investors. He encouraged portfolio managers to build on the learnings of the past hundred years to improve their training and portfolio construction processes.
Next, listeners heard from two data vendors, Paragon Intel and HG Insights. First, Colby Howard demoed the Paragon Intel platform, which allows investors to perform due diligence on executives of firms in the Russell 1000, and to track their performance at previous companies relative to the market. Next, Andy McBride of HG Insights presented a case study on Snowflake’s growth and how to use alternative data to track B2B tech vendors.
In our final session of the day, Mark Ainsworth of Schroders, Sheedsa Ali of PineBridge Investments and Michael Recce of Neuberger Berman spoke to Neudata’s Ian Webster about the need to integrate alternative data into the fundamental investing process.
Fundamental investors can immediately benefit from alternative data because it can set them up to ask better questions and develop stronger investment theses, one panellist said. That need has been amplified during COVID, where investors have sought data to understand how the world is changing, especially as more sectors have been disrupted and analysts have been less accurate in their consensus views.
However, it’s difficult to map the entire universe of data sources to the right questions. Fundamental investors, like all investors, struggle with the amount of time they must spend qualifying and on-boarding data before they’re able to draw insights out of it (or realise it won’t work for them).
The panel also addressed how data availability is making it easier for fundamental investors to dive deeper in their analysis on certain firms. Popular data sources, including web-scraped/web traffic and foot traffic, allow firms to explore – in a more in-depth way – the ways that consumers interact with companies. That insight is very valuable to fundamental analysts because it helps them increase their confidence in their predictions, a speaker said.
The group also stressed the importance of hiring data professionals that can build strong relationships with fund managers and can facilitate understanding of why data is needed across different investing pods.
Most traditional fund managers are already involved with alternative data in some form, but one panellist estimates that managers that are just starting out will need a runway of a few years to get on top of many of the challenges that exist, like picking the right tech platforms, introducing a new culture of people into the organisation and identifying the right datasets.
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