Investment managers have used data more than ever since the Covid-19 pandemic, but they continue to face difficulties assessing relevance and making sense of the data, say asset owners and fund managers.
Executives hailing from the likes of Australian pension fund Aware Super and Conning Asia Pacific said they have adopted the use of new types of data, such a real-time or non-financial data, made available during the pandemic, and combined it with old models to derive insights.
“From a fundamental equities perspective, the availability of real-time data seems to have stepped up through the course of the last year or two, particularly with the advent of Covid,” Tim Riordan, portfolio manager at Aware Super, said during the AsianInvestor's ‘Early warning signals: planning your portfolio in a new era’ webinar held on Wednesday (April 28).
One example of how real-time data during Covid informed Aware’s allocation decisions was evidence that people were doing away with public transport and “far preferring personal transport,” Riordan said.
“From that perspective, we were able to triangulate that through a couple of our exposures and really understand that this is certainly a tactical theme,” he said.
Aware uses a mosaic theory approach by stringing together multiple pieces of data to "triangulate" the information and “give us confidence and conviction around the view that we might have,” Riordan said.
“Often, what we're doing is adding layers of information to, to a position we have already adopted… And that can be perhaps an easier way to act on information rather than just having an initial single data point.”
Another example he offered was housing, as people spent more time at home than in the office. “Seeing that through the shift in property prices in our non-metro areas early last year, was, again, a really interesting piece of data that has supported a view of that we've adopted in terms of housing.”
Aware Super has been investing in affordable housing, acquiring a 90% interest with property group Lendlease in an urbanisation project in Brooklyn, New York that has an end-development value of A$1 billlion ($770 million). In February, the super fund announced that it had invested in a development in Liverpool in New South Wales that will be converted into affordable housing units, offices and retail space with an end-development value of A$300 million.
Property prices in Australia have been on a rebound since late last year. After plunging in the first half of 2020 as the pandemic hit, prices have risen 6.2% since September and are at 3% above pre-Covid levels.
From an asset manager perspective, Desmond Tjiang, managing director and senior portfolio manager at Conning Asia Pacific, said his team has had to adapt existing models to cater to the Covid pandemic.
“The biggest problem when using data is that all the data's have pretty much a very limited history. So for the case like Covid, we absolutely had no data before, and what has happened - the speed of the lockdown, the economic contractions - is something we have not seen before. And so was the amount of liquidity and speed of economic recovery now,” he said at the panel.
“The numbers are really outrageous. Right now, we have $3 trillion in liquidity and central bank interest rates at 0%; US market valuation is at historical highs… And to some extent, it's actually pretty dangerous to just stick to the old days or old models without adaptions. Because if you just take to the old data, in the old models, you can be completely wrong,” he said.
Aware Super’s Riordan, for instance, commented that the biggest challenge he faces is discerning the importance of the data he gets.
“Just from a relevance perspective, I think it's assessing if this piece of information relevant or at the CIO level? Is it relevant investment strategy level? Is it relevant for an individual portfolio manager or research analyst? It's a challenging one and can be quite, quite complex,” he said at the event.
Ross Allen, managing director of data analytics provider IHS Markit, who sponsored the webinar, said on the panel that integrating data in a single place can help by making it more “relatable and in the right context”.
By bringing the data together, investor will be able to “derive insight from that real economy data, and how it flows into companies with the financial markets that are being invested in, or as part of more broad risk and opportunity assessment.”
Data also provides early warning signals, he said. For instance, investors may be worried about Australia-China trade tensions, but only by using the right data can they hope to able to accurately measure their impact.
“There's two sides of the equation,” Allen said. “One, there's the rhetoric and the political or geopolitical tension that exists. And then there's a second: what is the actual impact of that tension on the actual trade flows of these commodities? And what did those trade flows mean?
"Is it having an impact of the underlying commodity price, and what's the downstream impact of quality price to companies that are highly or share price is highly correlated to said commodity?”