ETFChannel.com

How alternative data can lend clarity amid uncertainty

Wed, Jun 24, 8:34 AM ET, by , BlackRock

When conditions are not only unusual but evolving at a furious pace, as they have been since the novel coronavirus was identified early this year, clarity can seem an impossibility.

During such times, official data is often a mix of slow and noisy observations ― making it difficult for investors to develop a holistic and clear picture of the state of play. At the same time, many companies have been withdrawing guidance amid heightened uncertainty, making analysis at the industry and company level even more challenging.

Against this backdrop, alternative data and analytical tools take on new importance in identifying emerging economic and market trends that traditional sources can be slow to efficiently isolate.

What is alternative data?

Alternative (or big) data is physical, unstructured (text) or non-financial data generated by the technologies of our everyday lives ― smartphones, GPS and smart home devices, to name just a few. When aggregated and analyzed in the right way, alternative data can provide valuable insights into country, industry and company prospects.

The BlackRock Systematic Active Equity team has been using various forms of alternative data for more than a decade. Some data sources have proved particularly valuable this year, especially when analyzed with the right context in mind. Here we look at three examples and how they have been additive in assessing the macroeconomic and investing environment during the global coronavirus pandemic.

1. Foot traffic

Foot traffic around shopping facilities was one of the original big data metrics embraced by systematic investors early on, though its relevance has gradually diminished as a significant share of shopping has moved online.

Online buying is even more prevalent amid coronavirus-driven closures, yet foot traffic patterns have reasserted their importance in new ways. Differences in social-distancing policies have led to wide dispersion in activity across countries. We find that comparing foot traffic activity at various points of interest has provided a faster read on economic activity across countries and industries. Our readings at the end of May, for example, showed movement in China was more than two-thirds back to normal since re-openings began in March and April.

2. Natural language processing

Natural language processing (NLP) of text has proved especially useful in gleaning insights from analysts, many of whom were relatively slow to update their earnings estimates for the first quarter of 2020. This is understandable, and similar to what we saw during the global financial crisis of 2008-2009, as point-in-time numerical forecasts are difficult in a world with tremendous room for error. While an analyst may take some time to update a numerical forecast, analyzing the text of their reports helps paint a more complete investing picture in the absence of a definitive arithmetic stance.

NLP also has been helpful is getting an early read on fiscal policy, allowing us to parse analyst language for a sense of how policy is moving across countries. We then lean into those with easing tendencies, such as the U.S. The chart below shows the magnitude of change in fiscal policy direction as determined from sentiment measures gleaned from thousands of analyst reports.

3. Job postings

Hiring trends can reveal important information about both industry- and company-level growth prospects. During the COVID-19 crisis, we've extended our coverage of job postings to emerging markets where data scarcity would normally make it less informative. But given the velocity of change today, even lower-breadth measurements have proved useful in identifying potential winners and losers. We also have been able to identify firms seeking skillsets that support work-from-home and accelerating digitalization in general. First movers may have opportunity to gain market share versus competitors.

icon-pointer.svgGet Jeff's views on Navigating an uneven road to recovery.

From big data to meaningful insights

We have seen this year ― and over our long history using alternative data ― that different insights tend to add value at different times. Some are more effective around earnings releases, while others pick up on slow-moving trends that play out over several months. We have experimented with timing but found that the most effective approach is having diverse and differentiated insights to inform our investment decision-making.

Ultimately, all alternative data sources have flaws and the goal is to get better, not perfect. Our experience has taught us that having multiple datasets to draw from can reveal inconsistencies and anomalies just as well as potential trends. All of this together helps us to develop a picture of the backdrop before it is evident in the official data. This is the type of information edge than can make a difference when the world and the opportunities and risks in it are changing fast.

Jeff Shen, PhD, is Co-CIO of Active Equities and Co-Head of Systematic Active Equity (SAE) at BlackRock. He is a regular contributor to The Blog.

Investing involves risk, including possible loss of principal. Stock values fluctuate in price so the value of your investment can go down depending on market conditions. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks may be heightened for investments in emerging markets. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of June 2020 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader. ©2020 BlackRock, Inc. All rights reserved. BLACKROCK is a registered trademark of BlackRock, Inc. All other marks are the property of their respective owners. USRMH0620U-1216796-1/4

Investing without a parachute
Mon, Jun 29, 10:24 AM ET,
by , BlackRock

How alternative data can lend clarity amid uncertainty
Wed, Jun 24, 8:34 AM ET,
by , BlackRock

Don't miss the rise of the “value” phoenix
Tue, Jun 23, 3:04 PM ET,
by , BlackRock

Today's portfolios “Can't get no satisfaction” from yesterday's instruments
Tue, Jun 23, 2:54 PM ET,
by , BlackRock

The Race to Zero
Thu, Jun 18, 8:04 AM ET,
by , BlackRock

More articles:  1 2 3 4 5 6 7 next »

  Active   BlackRock   This   across   activity   alternative   analyst   been   data   from   have   information   insights   investment   more   other   risks   slow   sources   that   their   this   traffic   trends   with
10 ETFs With Stocks That Insiders Are Buying
10 ETFs With Most Upside To Analyst Targets
25 Dividend Giants Widely Held By ETFs
25 S.A.F.E. Dividend Stocks Increasing Payments For Decades
Broker Darlings: Top 15 Analyst Picks of the Dow
Top 25 Broker Analyst Picks of the S&P 500
Forgotten S&P 500 Giants: Analysts' Current Least Favorites
25 Top Ranked Socially Responsible Dividend Stocks
10 Oversold ETFs
The Top 10 DividendRank'ed Stocks
Warren Buffett Dividend Stocks
The DividendRank Top 25
The Top 10 DividendRank'ed DJIA Components
The Top 10 DividendRank'ed Dow Transports Components
The Top 10 DividendRank'ed Dow Utilities Components
The Top 10 DividendRank'ed Nasdaq 100 Components
10 Stocks Going Ex-Dividend
10 Oversold Dividend Stocks
10 Stocks Where Yields Got More Juicy
10 Dividend Bargains You Can Buy Cheaper Than Insiders Did
Top Ranked Dividend Stocks With Insider Buying
10 Energy Stocks You Can Buy Cheaper Than Insiders Did
10 Metals Stocks You Can Buy Cheaper Than Insiders Did
10 Oversold Metals Stocks
10 Must-Know High-Yield REITs
10 Top DividendRank'ed Financials
10 Top DividendRank'ed Metals Stocks
10 Oversold Energy Stocks
10 Top DividendRank'ed Energy Stocks
10 Top DividendRank'ed Utility Stocks
10 Stocks Crossing Below Book Value
10 Stocks Crossing Above Their 200 Day Moving Average
10 Stocks Crossing Below Their 200 Day Moving Average
10 ETFs Crossing Above Their 200 DMA
The 10 Biggest ETFs
The 10 Best ETF Performers
Best Vanguard ETFs By TTM Performance
Worst Vanguard ETFs By TTM Performance
Best iShares ETFs By TTM Performance
Worst iShares ETFs By TTM Performance
The 10 Worst ETF Performers
10 ETFs With Notable Inflows
10 ETFs With Notable Outflows
Top 10 Analyst Rated Consumer Stocks
Top 10 Analyst Rated Dividend Stocks
Top 10 Analyst Rated Energy Stocks
Top 10 Analyst Rated Financial Stocks
Top 10 Analyst Rated Healthcare Stocks
Top 10 Analyst Rated REIT Stocks
Top 10 Analyst Rated Technology Stocks
Best Dividend Stocks 2000-2020
Best High Dividend Stocks 2000-2020
Top Dividend Stocks 2010-2020
Best High Yield Stocks 2010-2020
Top Dividend Stocks 2015-2020
Top High Dividend Yield Stocks 2015-2020
The Top 10 DividendRank'ed Canadian Stocks
The DividendRank Canada Top 25
10 Canadian Stocks Going Ex-Dividend
10 Oversold Canadian Stocks
10 Canadian Stocks Where Yields Got More Juicy
10 Must-Know High-Yield Canadian Real Estate Stocks
10 Top DividendRank'ed Canadian Financials
10 Must-Know High-Yield Canadian Energy Stocks
10 Canadian Stocks Crossing Below Book Value
10 Canadian Stocks Crossing Above Their 200 Day Moving Avg
10 Canadian Stocks Crossing Below Their 200 Day Moving Avg
Stock market game

How alternative data can lend clarity amid uncertainty | ETF Channel | www.ETFChannel.com

Copyright © 2010 - 2020, All Rights Reserved Nothing in ETF Channel is intended to be investment advice, nor does it represent the opinion of, counsel from, or recommendations by BNK Invest Inc. or any of its affiliates, subsidiaries or partners. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All viewers agree that under no circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. By visiting, using or viewing this site, you agree to the following Full Disclaimer & Terms of Use and Privacy Policy. Video widget and ETF videos powered by Market News Video. Quote data delayed at least 20 minutes; data powered by Ticker Technologies, and Mergent. Contact ETF Channel; Meet Our Editorial Staff.