Stock pickers believe that alternative data—including digital footprints such as social media information, satellite images, etc.—can lead to outperformance against indexes, but the complexities associated with using such data can be a deterrent. This according to a recent article in Institutional Investor.
Citing results of a survey conducted by Greenwich Associates (and sponsored by FactSet), the article reports, “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.” It cites comments by FactSet’s head strategist Justin Rousseau, who argues that many managers are grappling with how to corral the data in a useful way. Younger portfolio managers, says Rousseau, are more engaged in the technology and are increasing their use of alternative data and “slowly moving away from such activities as meeting with management and visiting plants and other on-site research.”
The survey also found that active managers are generally pessimistic about the road ahead. Three-quarters of those surveyed, the article reports, “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.”