How the exponential growth of data is changing our industry

Whether you do your weekly food shop online or in person, you can’t help but notice the vast amount of information available to shoppers nowadays.

Providing this information is a major undertaking for supermarkets, which face a combination of regulatory and commercial pressures to provide accurate labelling on allergens, nutritional information and pricing across thousands of product lines.

Although we’re in the business of selling collective investment funds and ETFs rather than baked beans and carrots, the importance of giving our customers the information they need, when they need it, is much the same.

Data as a growth driver

Quantitative data is crucial to the asset management industry. A recent survey by FE Fund Info that canvased 103 UK asset managers with over £1 billion of assets under management found that 79% considered data intelligence ‘extremely’ or ‘very’ important for effective decision making, and 88% said that accurate and timely data is essential in driving asset growth.

From a distribution perspective, data helps reinforce and articulate what you are presenting. It can show how a fund can complement a client’s existing holdings, or demonstrate risk/return characteristics, while also providing flow information and revenue/geographic exposures.

Given the importance of benchmark reporting, this is vital in enabling our clients to construct portfolios that align with end investors’ objectives.

A changing world

The landscape within which our clients work has also been transformed by the growth of quantitative fund data, which can provide insights and identify potential investment opportunities. Clients rely on this data to evaluate investment performance, and ultimately it helps formulate a buy or sell decision on a fund.

The growth of quantitative data in the industry hasn’t been restricted to asset managers. One third-party data vendor boasts over 4,000 clients of independent financial advisers (IFAs) that use them for fund analysis. That’s the majority of IFAs within the UK.

The data provided by these vendors allows end users to assess whether portfolios can be defined as value, blend or growth; to verify market capitalisations and sectors; and to break down revenues by geographic exposure.

With ever-increasing regulatory scrutiny, costs and charges have come under the spotlight. Gone are the days of just quoting an annual management charge with a total expense ratio. Instead, we now provide ongoing charges and costs, and with the advent of MiFID II more granular detail such as explicit and implicit trading costs is supplied on an Excel spreadsheet under EMT 4.1. All of this allows clients to run detailed reports on funds and their respective portfolios.

Although greater regulatory requirements result in greater transparency that ultimately benefits the clients of IFAs and wealth managers, it’s also changing the nature of these jobs. One wealth manager recently bemoaned that meeting the regulatory data requirements takes them away from the enjoyable part of the job: finding new investment ideas and meeting fund managers.

It's not just about fund performance

Another area where data is transforming the industry is in environmental, social and governance (ESG) measurement. For example, LGIM’s proprietary ESG score comprises 34 data points, covering 17,000 companies. When it comes to selecting the data that feeds into our ESG score, we have three guiding principles:

1. Available: Are companies in the investable universe reporting this information?
2. Quantifiable: Is the information available in a numerical format to be included in the scores?
3. Reliable: Is the data reported regularly to allow for comparison among all the relevant companies?

Many of our clients also have access to third-party ESG data, which provides them with research, ratings and other information that helps them make informed decisions about the ESG status of their investments.

The road ahead

No discussion of data would be complete in 2024 without a mention of artificial intelligence (AI). My view is that AI has the potential to revolutionise quantitative analysis by automating and enhancing the process of data analysis.

However, just like human analysis, AI insights can only ever be as good as the underlying data. As such, ensuring the accuracy and consistency of data is an area that the industry simply can’t ignore.

Data has already transformed our industry, and I for one am excited to see what the future holds as human imagination meets the number-crunching power of AI.