Originally published on Markets Media, December 7, 2016.
By Terry Flanagan
There is a range of differing opinions on the use of alternative data. Which alt data sets are best, how is alt data used, and how is alt data best integrated into trading-desk workflows are just a few of the areas up for debate.
But if there is one consensus, it’s that the future of alternative data is promising.
“It’s very much early days,” said Sanford Bragg, Principal at Integrity Research Associates. “A lot of alternative data doesn’t have much history yet. It’s going to ripen, it’s going to deepen, it’s going to get better quality. It’s going to have a huge impact, both on the buy side and the sell side.”
In financial services, Bragg defines alternative data as any form of ‘big data’ that can be used as an input to making an investment decision. It’s a broad category, with multiple types of data sets falling under the alt-data umbrella.
Twitter and other social media platforms are a source of alternative data. Given that social media itself is less than 20 years old and widespread use has only come about over the past decade, it stands to reason that leveraging social media for trading and investing is an emerging methodology.
“I think in three to five years, everyone will be using alternative data,” said George Goldman, Vice President and Head of Finance Sales at Dataminr. “It’s not an if, it’s a when do people figure out how to incorporate this into their investment processes. If you’re not at least thinking about it now, you’re going to be left behind.”
This past January, BlackRock merged its active and quantitative equity teams. Any strategic move by the world’s largest asset manager is closely watched as a potential bellwether for the industry, and Goldman noted that there is indeed a trend afoot.
“The quant guys are becoming a little bit more fundamental in nature as far as their research process goes, and the fundamental guys are becoming a little bit more quantitative,” he said. “That should bode well for alternative data, which can be considered in the sweet spot of both as that convergence occurs.”