This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.

New Technologies Changing Asset Management

BlackRock

Contributor:
BlackRock
Visit: BlackRock

By: Jeff ShenRaffaele Savi|, & Richard Mathieson 

Technology is transforming the way we work. Asset managers are no exception as they seek better investment outcomes for clients.

Each second, oceans of new data are being generated by the Internet, smartphones, satellites and other innovations. This data is commonly referred to as “Big Data” or “alternative data.”

Many asset managers are seeking to harness the power of Big Data by using technologies like natural language processing, image recognition and machine learning to analyze it and uncover new investment insights.

BlackRock’s Systematic Active Equity (SAE) investment team has been using these technologies to analyze alternative data for more than a decade. Over this time, the team has learned four key lessons about how to make the most effective use of these technologies within an investment process.

Lesson 1: Target the “right” data and multiple data sources

Investment teams looking to harness the power of Big Data must cast a wide net when seeking to find the right data to enhance investment outcomes. Why? The global economy and financial markets are highly complex, and the data they generate are often unstructured and noisy. It’s important to reach far to capture what is most relevant.

Yet data alone does not translate to alpha. It requires proper processing and analysis to arrive at investable insights. Once the “right” data is found, it is unlikely that a single dataset will produce accurate forecasts. SAE found that using multiple data sources to corroborate one another and answer the same investment question could significantly improve the quality of forecasts. The illustrative example below shows the various sources of information that can aid an asset manager in projecting a company’s sales growth. 

The more data sources the better

Alternate data sources used to project sales growth

The more data sources the better. Alternate data sources used to project sales growth

Source: BlackRock, as of September 2020. Provided for illustrative purposes only, not meant to depict actual data.

Lesson 2: Technology is only as good as the hands it’s in

The ability of technology to analyze a massive amount of data within seconds is impressive, but it is human expertise that brings technology’s power to life. Take machine learning. Not only can machine learning algorithms analyze reams of data in a flash and generate insights, they can determine relationships between a vast number of data inputs in a way that adapts to changing data patterns. Though the computational and adaptive capacity of machine learning exceeds human ability, the ultimate success of the application of machine learning (or any technology) relies on human expertise to develop and refine it.

Lesson 3: Technologies can – and do – lose their potency

Markets are continuously changing, and that means investment opportunities have a lifecycle. To keep up with new opportunities as others fade, an investment team needs to be relentless about 1) finding new data sources and 2) innovating the technologies used to analyze that data.

Consider, for example, the evolution of SAE’s natural language processing techniques for analyzing corporate language to help forecast company prospects. The initial work focused on measuring sentiment through counting the use of positive versus negative words that had been predefined by SAE researchers. As time went on, they began to focus on the source and target audience of the text. One finding: remarks by CEOs tended to be more positive and scripted, so focusing on the CFO’s remarks or the Q&A sections of the call proved consistently more useful. Comparing sentiment from one source (such as information given to the market) with another source (such as information given to a regulator) also helped identify instances of company spin versus hard facts. See the example below.

Source: SEC EDGAR. Paul Ma, Information or Spin? Evidence from Language Differences Between 8-Ks and Press Releases, 2012.

Lesson 4: Collaboration breeds innovation

The reams of data generated by technologies like the Internet and smartphones can be structured to provide investment insights. While dedicated data and computer science expertise is required within an investment team to analyze the data, SAE’s experience in integrating teams with diverse skill sets has shown that having specific expertise on a team is not enough: Successful innovation (that is sustainable) requires a culture of collaboration and constructive debate. And, this can require many years to create.

Download full report

Originally Posted on October 27, 2020 – New Technologies Changing Asset Management

© 2020 BlackRock, Inc. All rights reserved.

This material is provided for educational purposes only and 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 September 2020, and may change as subsequent conditions vary. The information and opinions contained in this material 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. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. The material was prepared without regard to specific objectives, financial situation or needs of any investor.

This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of yields or returns, and proposed or expected portfolio composition. Moreover, where certain historical performance information of other investment vehicles or composite accounts managed by BlackRock, Inc. and/or its subsidiaries (together, “BlackRock”) has been included in this material, such performance information is presented by way of example only. No representation is made that the performance presented will be achieved, or that every assumption made in achieving, calculating or presenting either the forward-looking information or the historical performance information herein has been considered or stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could have a material impact on the investment returns that are presented herein by way of example.

Investing involves risk. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Diversification does not ensure profits or protect against loss.

This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change.

Prepared by BlackRock Investments, LLC, member FINRA

© 2020 BlackRock, Inc. All Rights Reserved. BLACKROCK is a trademark of BlackRock, Inc. All other trademarks are those of their respective owners.

USRMH1020U-1378712

Disclosure: BlackRock

©2021 BlackRock, Inc. All rights reserved. BLACKROCK is a registered trademark of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners.

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from BlackRock and is being posted with permission from BlackRock. The views expressed in this material are solely those of the author and/or BlackRock and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

trading top