It’s Time to ‘Cash In’ on Big Data

For all the growing interest in alternative data, investors still aren’t using it for the majority of assets under management, according to Bank of America Corp. 

Of the $434 billion managed by investors surveyed by Bank of America, 55 percent is invested without using alternative information such as satellite imagery, GPS tracking, and sentiment analysis of social media, the bank’s analysts said in a report this month. “Time to cash in all this (big) data,” they wrote. 

Based on an August probe of fund managers, Bank of America sees a large opportunity for investors to embrace increasing information beyond traditional data such as market prices and company filings. While alternative data sets “are often less structured and less readily accessible,” the information can help fund managers produce alpha, particularly when stemming from nascent areas.

Asset managers will have to pay up for it, though, and costs vary.

Citing Eagle Alpha sales in 2020, the BofA analysts said that the average contract price for datasets is $56,000, with outliers “costing well into the six figures.” Data tied to credit, geo-location, app usage, “web scrapes,” and employment tend to be the most expensive, according to the report.  

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Bank of America’s survey of fund managers found that 59 percent of investors who said they use alternative data had been doing so for less than two years. Web-scraped was the most popular type cited by surveyed investors, followed by geo-location, social-media, and credit-card data.

“Global data is doubling every 2-3 years,” the analysts said. “Alternative data is an asset class of information that has come into being off the back of the broader data explosion.” 

In one example of the potential benefits for investors, the analysts said the Foursquare app was able to “predict Chipotle’s sales by capturing geo-location data from check-ins and visits.”

They also suggested thematic uses of alternative data, such as analyzing remote working in the Covid-19 pandemic. Geo-location data, for example, could help gauge the foot traffic of people returning to the office in cities such as New York, San Francisco, and Boston, the BofA analysts said.

The level of detail found in alternative data, along with the breadth and rarity of the information, factor into its power to help produce alpha for investors. Drone imagery, maritime data from nanosatellites, and “wearable tech” are among the untapped areas that are potentially valuable to fund managers, according to Bank of America.

However large the opportunity in big data may be, asset managers will need to keep mining for new and innovative sources of it.

“The value of data will often decay over time,” the analysts said. “The more investors who have access to it, the more it will become commoditized and fail to generate excess returns.”