71% of asset managers believe that using alternative data gives them an
investing edge over competitors, according to a new
study by Greenwich Associates commissioned by business information
provider IHS Markit (Nasdaq: INFO).
74% of firms surveyed agreed that alternative data is starting to have a
big impact on institutional investing, demonstrating its valuable
explanatory power to both quantitative and fundamental investment models.
Around half of investment managers are currently using alternative data
with another quarter planning to do so in the next 12 months, according
to the research.
Alpha and long-term competitive edge found in alternative data
Nearly 30% of quantitative funds attribute at least 20% of their alpha
to alternative data, the study revealed. Furthermore, 42% of all asset
managers believe the alpha edge they achieve by using alternative data
lasts for at least four years.
Driven by the value they see, investment firms are spending more on
procuring alternative data. In 2018, budgets increased by 52%, on top of
an increase of 76% the previous year, according to the study.
“Even more revealing than the high level of value asset managers
attribute to alternative data, is that they also believe using it helps
them achieve long lasting competitive advantage,” said Adam
Kansler, president of Financial Services at IHS Markit. “The high
degree of industry confidence in alternative data confirms that we are
in the early stages of a profound shift toward incorporating more and
more diverse datasets into the investment process.”
Investment firms expanding usage and sources of alternative data
More than half of firms surveyed subscribe to one or more alternative
data sources and at least 50% of investment funds are increasing the
number of alternative datasets they use, committing more internal
resources to using alternative data and increasing the role of
alternative data in investment models.
The most commonly used alternative data includes web-scraped data,
search trends and social media sentiment.
“Today usage concentrates in natively digital information, such as Web
traffic, but the most sophisticated firms are already testing more
direct and more granular indicators of financial performance,” said
Kansler. “We can provide deep insights into the supply chain dynamics in
virtually every industry and our analysis finds significant alpha, for
example, in ocean cargo and automobile registration information, as well
as in specialty financial indicators like CDS pricing and short interest
Tools and expertise are key to implementing alternative data
When thinking about the preferred level of support alternative data
buyers want from their vendors, a large majority, 83%, want some
assistance in ingesting and processing the data. More than half of firms
want access to experts with whom to consult about the sources and
methodologies a vendor uses in producing alternative datasets.
“A strong message that we heard from practitioners was that the tools
and techniques for analyzing the data are as important as the data
themselves,” said Richard Johnson, a principal at Greenwich Associates.
“Alternative data, by its nature, is harder to ingest than financial
data. In raw format, it is often unstructured, requiring extensive
scrubbing, normalization and back-testing before it can be effectively
“Most firms require some degree of technical assistance to get the most
out of non-financial data,” said Kansler. “A collaborative service model
is essential to bring the benefits of alternative data to the majority
of investors. We offer experts who can consult about our sources and
methodologies, prepackaged analytics and a data science team which can
partner with firms to design and test advanced data models.”
For the study, Greenwich Associates interviewed 42 investment
specialists at quantitative, fundamental and hybrid asset management
companies between December 2018 and February 2019.
About IHS Markit (www.ihsmarkit.com)
IHS Markit (Nasdaq: INFO) is a world leader in critical information,
analytics and solutions for the major industries and markets that drive
economies worldwide. The company delivers next-generation information,
analytics and solutions to customers in business, finance and
government, improving their operational efficiency and providing deep
insights that lead to well-informed, confident decisions. IHS Markit has
more than 50,000 business and government customers, including 80 percent
of the Fortune Global 500 and the world’s leading financial
institutions. Headquartered in London, IHS Markit is committed to
sustainable, profitable growth.
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