Traditional “long-only” investors are joining quantitative early-adopters in using alternative data to achieve investment alpha, according to a new study from Greenwich Associates.
Nearly half of investment managers that participated in the study said that they use alternative data, with another quarter planning to do so in the next 12 months. Meanwhile, the study shows that budgets for alternative data are up 52% in the last year, and 56% of investors have added new alternative data sources in the last two years.
“Until recently, the usage of alternative data has been confined mainly to the realm of quantitative investment managers,” says Richard Johnson, principal at Greenwich Associates Market Structure and Technology practice. “Now, alternative data is beginning to go mainstream, with increasing interest from fundamental and hybrid asset managers.”
A strong message from the alternative data investment specialists participating in the study is that the tools and techniques for analysing raw data are as important as the data itself. Johnson comments: “Alternative data in raw format is often unstructured, requiring extensive scrubbing, normalisation and back-testing before it can be effectively utilised.”
Reflecting this, the study reports that 62% of users prefer data to be packaged by data providers in some way, as opposed to delivered in raw format, and 83% want some assistance in ingesting and processing the data.
It seems that the advance of alternative data beyond quant funds to more fundamental and hybrid investors is causing traditional financial information vendors to expand into the alternative data market and develop offerings tailored to this new segment. The top five sources of alternative data identified in the study are large, integrated market data vendors, with smaller independent data vendors recording much lower penetration among this demographic.
“This is a sign of how the industry is maturing, and the extent to which large market data vendors have upgraded their products to incorporate alternative data sources,” says Johnson.