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Portfolio Management and Creative Data Usage

September 27, 2016

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While reasoning and decision-making are indispensable when it comes to portfolio management, the amount of data now available is completely revolutionizing portfolio strategies. This is due largely in part to the growth and expansion of digital data, IT systems, and other technological innovations. Portfolio managers must both adapt to and take advantage of the data revolution in order to maximize their investments and reduce risk.

As discussed in a previous blog, investment trends are returning to more basic, fundamental portfolio management principles. Creating a strong, durable portfolio is a natural response to the volatile investment waters that are being hammered by various political, economic, social, and even environmental factors. Stable portfolio creation is greatly enhanced by:

  • Greater risk research
  • Increased diversification of assets
  • More in-depth use of technology to grab key data points

We can anticipate greater collaboration between technology specialists, data analysts, and legal teams in the future as data technology takes a more prominent role in investor activity.

Increased Breadth and Depth of Portfolio Data

Broad data on recent trends can greatly influence investment decisions; the scope of the data can also be fine-tuned to analyze particular slivers of behavior. In particular, data mining practices are opening the doors to more specified investment strategies than were previously possible.

For instance, the installation and use of server rooms that can generate and mine massive amounts of data is becoming more popular; in turn, with the increased amount of data, the information can be used for predictive rather than mere recordation and tracking purposes.

As an example, investors have increasingly specific data on behavior and guideposts such as:

  • Savings rates
  • Employment patterns (people are changing jobs more frequently than ever before)
  • Amount of time spent in a particular job or career
  • Age of retirement
  • Various other factors

These specific data categories can be useful when identifying the investment profiles of the newer, younger generation, who are living more fluid, fast-paced lives than their predecessors. Using such guideposts, financial managers may be able to more accurately assess potential risks and opportunities for clients.

Unconventional and Creative Uses of Data

In a recent blog post, State Street Corp. CEO Joseph Hooley identified several ways in which “unexpected” data can be used to creatively solve investment problems. This is data that traditionally might not have been considered in relation to portfolio management. These data applications include:

  • Use of data to interpret media information to predict unexpected risks and sudden shifts (dubbed “tipping points”)
  • Weather tracking technology to monitor industries that are weather-dependent, such as agriculture, timber, and even energy. This important development may be a crucial key for investors to consider, especially as ESG factors take a more prominent role in corporate governance policy
  • Examination of online retail purchase data to better monitor price fluctuations and track inflation trends and price shocks

Thus, as the ability to track data in general expands, the possibilities for investment analysis also increase both in scope and depth. This allows investors and fiduciaries to achieve a more comprehensive picture of a given market before taking any actions. It is clear that the main challenge in the very near future will not be a lack of data, but rather the ability to focus and sift through large amounts of data to create innovative data solutions.

Applications of Data in Legal Settings

Lastly, big data can be very useful in legal applications, especially in instances where additional information is needed before proceeding with an important decision.

For example, pensions boards are often placed in situations where they need to decide whether to pursue legal action to recover losses stemming from wrongdoing. Such decisions are not to be made lightly; as a fiduciary, the board needs to consider facts before ultimately deciding whether to pursue an action. Under these types of circumstances, the availability of additional data can assist the board in weighing the benefits and risks of legal action, and can help support a more well-informed decision. Relevant data sets might include corporate filings, annual reports, balance sheets, and various other data sets.

Thus, the technological revolution that is currently happening in the data industry has the potential to affect everyone from individual investors to large investment institutions. The incorporation of data mining from various sources is quickly becoming standard practice and, indeed, is already a routine aspect in many fields.

If you have any questions or concerns regarding the use of data in a portfolio management or investing context, contact Kessler Topaz today for more information and guidance. Our ability to convert relevant financial and economic data into compelling advocacy has allowed us to achieve significant recoveries for our clients.