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Survey: Data May Be Last Best Hope to Beat Index Trend

Stock pickers say alternative data can create excess returns, but only a small group of active managers are taking advantage of it, a Greenwich Associates survey finds.

  • Julie Segal

Active managers think the shift to index funds will continue for many more years and alternative data may be the one thing that can save stock pickers, according to a survey conducted by Greenwich Associates and sponsored by FactSet.

In the survey, released Wednesday, Greenwich found that 60 percent of portfolio managers — the majority of them active — think that alternative data can help generate alpha, or returns above a benchmark. Yet only 28 percent were currently using alternative data in their investment shops. In addition, 60 percent said they are not planning to implement the use of alternative data in the next 12 months. The survey polled 68 portfolio managers, chief investment officers, and analysts at asset management firms in the U.S., Europe, and Asia.

Justin Rousseau, who leads FactSet’s strategy for portfolio managers, says the disconnect between the promise of alternative data and the reality of using it comes down to complexity.

“Portfolio managers are struggling with the technology and how to get their arms around it,” he says.

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Rousseau says using alternative data can be tricky, including the labor involved in structuring it and making it useable. Finding valuable data that will lead to true insights and trying to keep ahead of competitors is challenging. He says that anecdotally, however, he finds that younger portfolio managers are using more data in their fundamental investment processes and slowly moving away from such activities as meeting with management and visiting plants and other on-site research.

The survey also found that fundamental portfolio managers were more interested in data such as social media content and supply chain information than more complex information such as satellite images.

Active managers also expressed gloom about their future. The Greenwich/FactSet survey found that three-quarters of portfolio managers think that in the long term, 40 percent of global institutional assets will be indexed. One quarter of respondents said more than 60 percent of assets would ultimately be passively managed.

Still, active managers are eager to prove their worth in the volatile markets that they see coming in the years ahead. “No one wants a down market, but these managers are rooting for a chance to show themselves again,” says Rousseau. “But they know it will all come down to performance.”

Rousseau says survey participants were allowed to write in comments, some of which were revealing. For one, many said that investors will turn to active in a downturn, in part because they will want someone to explain markets to them and will also want someone to blame. “If your pension plan is down X percent and you’re just indexing, who will you fire?” says Rousseau. “You can’t show you’re doing anything.”