Data is reshaping almost every sector and investing is no different, says Morningstar. Here are four ways harnessing data is helping the investment industry innovate according to the leading firm.
The Covid-19 pandemic and national lockdowns have made us more reliant on technology than ever before. The use of data has revolutionised almost every industry, and financial services is no exception.
But how does that help investors? Modern data makes investing more efficient, analysis better quality, and allows firms to innovate. For consumers, data means better products and greater ease in analyses investments and building portfolios.
Here are four ways data is shaking up the investment world:
Data can improve investor outcomes
Value for money is rightly important to investors and data means it is easier to find out fund performance, fees, costs, and research quality. This focus on value has raised expectations for asset managers, who must prove their worth to investors.
The arrival of broader data sets, new technologies, and more sophisticated data modelling techniques has been transformative. Investment propositions have been redesigned to become outcome-focused, and fund firms now create solutions designed to meet specific objectives, instead of only products.
In the wealth management sector, meanwhile, competition has grown fiercer with the launch of digital start-ups. To protect market share, traditional players, once reliant on face-to-face relationship management, are using data to improve customer-facing digital platforms by offering tools to show portfolio exposures in real-time and to facilitate the instant buying and selling of securities, currencies and funds.
Investors are also getting a more personalised experience than ever before thanks to the wider availability of data. Now customers can get a product tailored to solving their specific problem because firms have enough data about the customer to make the personalisation feel genuine and the algorithms to do the number-crunching on it.
Data can cut costs
Profit margins are being squeezed at many companies – whether that’s because of increased compliance demands or mounting infrastructure costs, fund management groups and institutional investors alike are turning to data to reduce costs while giving their portfolios a better chance of outperformance.
At a time where sustainability issues are now at the heart of the investment process, data can show the speed at which portfolio companies are improving their sustainability profile.
Access to and analysis of good data allows companies to review their approach, find new investment opportunities, and improve efficiencies across the board. Widely-used techniques have already shown that data can enhance investment selection research, improve price and performance analysis, anticipate portfolio behaviours in different market scenarios, and offer insightful peer group comparisons for identifying areas for improvement.
Data improved transparency and accountability
Since the 2008 Global Financial Crisis, regulators have been working to improve customer protection.
Once again, firms are turning to data and technology to ensure they satisfy these requirements. Previously stretched compilance teams can use data sets to chart a risk positions in real-time, at portfolio and company levels.
Data has also made it easier for businesses to convey how suitability requirements are satisfied and to provide evidence of how decisions are made in the best interests of customers. It’s also allowing businesses to closely monitor their own organisations for compliance vulnerabilities before they arise.
Data can help with help with ESG
Increasingly, investors are showing a greater interest in issues of environmental, social and governance (ESG) and this has led to an increase in flows to ESG-oriented funds, sparking the launch of a raft of new products.
Armed with greater access to data and research, investors can now delve into their funds’ underlying holdings. Investment teams, meanwhile, can look at a portfolio’s carbon output credentials, for example, or exclude companies that operate in “sin” sectors such as gambling, tobacco or pornography.
At a time where sustainability issues are now at the heart of the investment process, data can show the speed at which portfolio companies are improving their sustainability profile.
Effective data analysis has become crucial in an industry facing significant cost pressures and efficiency challenges. However, gaining enough data from numerous sources and then carrying out the required level of analysis has become an extremely time-consuming and expensive practice for many firms. Faced with sky-rocketing data costs, many firms are seeking to consolidate their data solutions.