Survey: Data May Be Last Best Hope to Beat Index Trend

Active managers think the shift to index funds will continue
for many more years and alternative data may be the one thing
that can save stock pickers, according to a survey conducted by
Greenwich Associates and sponsored by FactSet.


In the survey, released Wednesday, Greenwich found that 60
percent of portfolio managers — the majority of them
active — think that alternative data can help generate
alpha, or returns above a benchmark. Yet only 28 percent were
currently using alternative data in their investment shops. In
addition, 60 percent said they are not planning to implement
the use of alternative data in the next 12 months. The survey
polled 68 portfolio managers, chief investment officers, and
analysts at asset management firms in the U.S., Europe, and
Asia.


Justin Rousseau, who leads FactSet’s strategy for
portfolio managers, says the disconnect between the promise of
alternative data and the reality of using it comes down to
complexity.


“Portfolio managers are struggling with the technology
and how to get their arms around it,” he says.


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Rousseau says using alternative data can be tricky,
including the labor involved in structuring it and making it
useable. Finding valuable data that will lead to true insights
and trying to keep ahead of competitors is challenging. He says
that anecdotally, however, he finds that younger portfolio
managers are using more data in their fundamental investment
processes and slowly moving away from such activities as
meeting with management and visiting plants and other on-site
research.


The survey also found that fundamental portfolio managers
were more interested in data such as social media content and
supply chain information than more complex information such as
satellite images.


Active managers also expressed gloom about their future. The
Greenwich/FactSet survey found that three-quarters of portfolio
managers think that in the long term, 40 percent of global
institutional assets will be indexed. One quarter of
respondents said more than 60 percent of assets would
ultimately be passively managed.


Still, active managers are eager to prove their worth in the
volatile markets that they see coming in the years ahead.
“No one wants a down market, but these managers are
rooting for a chance to show themselves again,” says
Rousseau. “But they know it will all come down to
performance.”


Rousseau says survey participants were allowed to write in
comments, some of which were revealing. For one, many said that
investors will turn to active in a downturn, in part because
they will want someone to explain markets to them and will also
want someone to blame. “If your pension plan is down X
percent and you’re just indexing, who will you fire?”
says Rousseau. “You can’t show you’re doing
anything.”

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