In focus

How data is helping us invest


Thanks to Coronavirus, data has become an ever more important part of our everyday lives. Anyone watching the news is now used to data on case numbers and the previously-unheard of “R rate.” While the pandemic continues, this data dictates how and when businesses can open, how many of our friends and family we can see at one time and where in the world we can travel.

The analysis of new data sets is not just of use in public health – it can also be a useful tool for investors. In 2014, Schroders formed a Data Insights Unit. The team uses data science techniques to provide our investment managers with a broader and more nuanced view of the assets they own in a portfolio.

What is “Alternative Data?”

Market data such as share prices and volumes, company data and government statistics are all considered “traditional” sources of data. However, we now have access to huge “alternative data” sets that haven’t normally been used in the past.

These include data on weather, store locations and social media use. Accessing and analysing this information typically requires specialist skills, but it can provide unique and valuable insights.

Raining on your shop parade

Weather data is something that we are all familiar with – but we don’t necessarily have the ability to look at it across multiple
locations and time periods. Schroders Data Insights Unit have found ways to use current and historical weather data in many sectors. In one project, the team was asked to help assess a company’s claim that poor weather was to blame for disappointing sales. Our analysis of weather data suggested that in fact the temperature had been below the normal range. In this scenario, alternative data allowed us to verify a management team’s claim and allay concern that other, more fundamental challenges were behind the poor sales.

Temperatures in Poland 2014-Q1 2018 Temperature (celsius)

poland-weather-big-data.jpg

Source: Schroders Data Insights, April 2018

Local Battlegrounds

Alternative data can be used to help us map the location of retail outlets. This can give us a much clearer view of local battlegrounds for business and help us assess the relative positioning of competitors. For instance, the map below shows which parts of a US city are closest to home improvement competitors Home Depot and Lowes. We aggregated this data from hundreds of locations and combined it with information on local demographics to help us understand whether better store positioning was helping Home Depot outperform. 

battleground-catchments-big-data.png

Analysing the pandemic

As it became clear that Covid-19 was spreading globally, we started focusing on the crisis to provide our investment teams with a clearer view of its potential impact. We used data on infection rates and population density to develop our own epidemiological models. We also looked at new data sets, such as traffic and consumer spending data, to help understand the potential economic impact. Interestingly, data shows that growth in online spending has not significantly slowed with the re-opening of "bricks and mortar" retailers. This suggests that prospects for some e-commerce companies could still be brighter than the market anticipates. 

Population density Persons per square kilometre

population-density-big-data.png

Source: Source: Schroders Data Insights, May 2020

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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James Brennan

James Brennan

Portfolio Director james.brennan@cazenovecapital.com