How big investors harness ‘alternative data’ to give you a market edge

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New technology levels the playing field for mutual funds, venture capital, and hedge funds.

Alternative data provides investors with a greater degree of transparency into how companies are performing. From purchase data that tracks retail sales, to social analytics that measure online brand popularity, to geo data that measures locations and traffic, investors can now take a much deeper look into business operating fundamentals in a way our research landscape didn’t previously allow.

The term “alternative data” initially served to differentiate non-customary information from what the investing world now refers to as traditional or financial data. Traditional data such as historical publicly-reported revenue, cash flows and earnings have been modeled for generations against commonly used inputs such as price, volume and technical analysis.

Some of the most commonly used data include traffic counts of visitors to retailers or websites, purchase data to track sales at retailers, restaurants and e-commerce platforms, and social analytics to measure and track the most popular online conversation topics and search inquiries among products and brands.

Software and connectivity have long since changed how we interact with financial intermediaries, transact and execute trades, manage risk, and construct portfolios. It wasn’t until recently, however, that technology managed to disrupt the investment research process. With the use of alternative data, portfolio managers now have insight into company performance on a near-real-time basis.

 

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