Using data science to capture better fundamental insights
In this article, the Schroders Data Insights Unit shines a spotlight on this prolific science and provide instances in which ‘unorthodox’ data – under the right analysis – has been transformed into distinct insights that can dynamically complement traditional fundamental research…and ultimately, security selection.
"We are drowning in information but starved for knowledge" - John Naisbitt (Author of Megatrends)
Improving on fundamental research
The rise of the digital economy has brought with it countless new ways to identify, measure and track useful information. Advances in data science are making it possible for investors to better understand and monitor important developments in real time rather than waiting to hear about them from the company, government body or news outlet. This is particularly valuable on the global stage, where many companies don’t necessarily report on a quarterly basis and the flow of information can vary across borders. In instances of ambiguity or uncertainty, incremental information can often be the most powerful lever to add value to a decision.
Information is the cornerstone of investment research. Traditional investment managers gather information by conducting rigorous analysis of companies’ incomes statements, balance sheets and cash flow statements to understand the progression of growth in a business. They also leverage information from meetings with company management, competitors, suppliers and others to better understand the competitive landscape and fine tune their forecasts. This remains a vital and effective approach to appraising the forward-looking value of a business. Traditional investment managers have relied on largely the same sources of information for a long time with the primary advantage being driven by the analysts and their interpretation of information. However in today’s information age where the digital universe is expected to double every two years, we are seeing more and more non-traditional sources of information that can be utilized to generate better predictions and enable smarter decisions. As business activity is increasingly digitized, more and more new sources of information are emerging.
In 2014, Schroders created the Data Insights Unit (DIU) in recognition of the increasing importance of non-traditional sources of information. The team is composed primarily of data scientists and has been growing rapidly since its launch as it continues to develop valuable tools to further Schroders’ research efforts. Its primary function is to serve as pioneers of information acquisition and exploitation by partnering with the portfolio managers and research analysts spanning the globe to help them develop insights to questions not easily answered through traditional research. The DIU’s focus is on making sense of very large and unconventional data, so Schroders’ investors can act on the information to make better investment decisions.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.