COVID-19: Propelling Alternative Data
It’s no secret that the use of alternative data has greatly increased in recent years. Financial market participants have recognized the value it brings to the table, introducing new and unique insight into their investment models to generate alpha returns. Now, many are expecting that the coming years will see a surge in alt data usage, spurred by a new reason. Enter COVID-19.
In a new Burton-Taylor survey of market data professionals, 50% predict that spending on alternative data will increase over the next 18 months, with nearly one-half of those expecting that increase to be significant, greater than 6%. Investment in alternative data has been steadily rising for several years, but the value of information around the spread of COVID-19 promises to invigorate these data sets.
COVID-19 has uprooted virtually all aspects of the economy and it is still unclear how long those effects will last. Given the uncertainties behind the effects of COVID-19, many companies are understandably withdrawing forward guidance. With news and information around COVID-19 changing weekly, if not daily, investors will look to supplement their more traditional data sources with new ones. Capital markets participants will increasingly look to alternative data sets that present unique information, such as detailed COVID-19 tracking data that focuses on the number of cases, tests, hospitalizations and the level of community spread.
Several large data providers (i.e. Bloomberg, Refinitiv, S&P Global) have launched intricate COVID-19 tracking tools, showing that this data is being highly sought out and utilized by market data consumers. These tools provide users with the ability to focus on a desired locality and see detailed trends of cases, positivity rates and community spread. Many of these tracking tools also offer information on how certain demographics are affected, as well as ways to compare multiple locations side by side.
Investors, corporate decision makers and other capital markets participants can utilize these tracking tools and data sets to help them make better informed decisions. Being able to layer this data onto other data sources will enable users to recognize and predict how various regions, industries and demographics will be impacted by COVID-19, allowing for quicker and more informed investment decisions to be made.
For instance, monitoring smart phone location data, together with social media trends, both showing unusually large clusters of iPhone owners and social media connections gathering in the same location(s) might be used to predict a potential outbreak of the virus in an area that previously had lower levels of community spread. Information like this would lead some to bet on the possibility that a larger outbreak will ensue that influences the economy and, ultimately, the markets.
Given the increased uncertainty in today’s financial world, investors and corporate decision makers will be forced to seek out new data sets to enhance their investment strategies, propelling the overall demand for alternative data. By tapping into alternative data sources such as virus tracking and monitoring, investors will be able to quickly assess and adjust their positions and strategies to better suit the current environment – whatever it happens to be that week (or day for that matter).
Burton-Taylor International Consulting offers unique insight into the Global Market Data Industry. In its new report, Financial Market Data/Analysis 2020 Global Demand Survey, Burton-Taylor highlights revenue, segment & regional growth sentiment for the market data industry over the next 18 months. For more information on this report, please click here.
Adler Smith is an Analyst at Burton-Taylor International Consulting, part of TP ICAP Group, where he is responsible for research and analysis covering the market data and exchange industries.