Shane Meredith (SuisseTechPartners): Tapping insights from alternative data
Shane Meredith, head of Asia-Pacific sales at SuisseTechPartners, says wealth managers need to learn to identify and exploit investment insights derived from alternative data, from shipping movements to climate data and social media trends,
What constitutes alternative data that can be useful to investors?
The use of alternative data – any information that investors have not traditionally used for decision-making – constitutes one of the most significant trends in investment and wealth management; it has rapidly become a multi-billion-dollar market. JP Morgan estimates that asset managers worldwide spent around $3bn on alternative data in 2017, and logic suggests that the total is significantly higher today. Alternative data usually consists of non-financial information not found in the investment media, financial reports, and – in the case of the Chinese asset management market – China Securities Regulatory Commission reports. A typical example of alternative data is the number of ships leaving Chinese ports – counting the number of ships can indicate to investors any change in the level of trade between China and other countries.
"A popular source of alternative data is social media, where trending topics could indicate interest in products or services that could result in higher sales.”
From climate data to social media
A more abstract alternative data point that could be relevant for investors in the insurance sector is the average temperature around the world, since rising temperatures are an indicator of global warming caused by greenhouse gases. Climate change is increasingly blamed for the greater frequency and greater destructiveness of natural disasters such as wildfires or hurricanes and other tropical storms that lead to increased insurance claims and payouts – meaning that companies are likely to have less profit to return to investors. A wealth manager might examine carbon emissions and temperatures – at global or regional level – to determine the level of risk that insurers are becoming less profitable. A popular source of alternative data is social media, where trending topics could indicate interest in products or services that could result in higher sales and profitability for the companies that provide them. For example, trending social media posts about a particular car model could be a forward indicator of higher sales for the vehicle’s manufacturer.
Tracking entertainment products, technology and marketing effectiveness
Many institutional investors now monitor social media such as Facebook, WeChat, Twitter, Instagram and TikTok to determine public levels of enthusiasm for new products. Investors in the entertainment industry monitor social media activity to determine levels of interest in new movies, video games, TV shows and other products. Alternative data can also track the adoption of new technology through monitoring of social media to indicate whether consumers are aware of new technological tools and plan to spend money on them. It can also help investors – and companies themselves – to determine whether marketing and advertising campaigns are working. If there is little or no social media chatter about an advertising campaign, it may that it is not having much effect. This information can be particularly valuable for investors in sectors that are particularly reliant on marketing, such as entertainment and retailing. This means that it’s vital for wealth managers in Asia and elsewhere to learn what alternative data is and how to use it. Those who understand alternative data are set to enjoy an advantage in the future by helping them to reach better informed investment decisions.