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'Big Data' Fueling Transformation in Asset Management

Smart beta and factor investing are two examples of how big data is transforming the investment landscape.

By Matteo Andreetto

Artificial intelligence (AI) has played a growing role in capital markets over the past 15 years. The term most commonly refers to the development of computer systems capable of decision-making tasks normally requiring human intelligence.

However, computers are able to perform such tasks at exponentially higher speeds and frequency, which is impossible for humans. And at lower costs. Algorithmic trading, an AI application, grew six-fold from 2003 to 2012, reaching 85 percent of market volume.1

According to Deutsche Börse Group, big data is currently fueling the evolution of AI-driven investment analytics.2 The term refers to the role that AI has played in enhancing the reach of data. This has been done through the development of tools that enable more-efficient ways to mine, analyze, curate and utilize data, essentially powering the conversion of that information into better investment decisions and new investable products.

New-world technology.

Big data is considered AI’s lifeblood and has attracted a record level of interest in these technologies. Investment in AI startups grew to nearly $2.4 billion in 2015 from $282 million in 2011, according to one study.3

The barrage of data is coming from an increasing number of sources, and ever-more-efficient analytical methods and architectures are showing potential for transforming the entire asset management industry through vast competitive advantages. This disruption can already be seen in the success that interactive investment technologies such as so-called "robo advisors" have experienced.  

Transforming passive investments.

Smart beta and factor investing strategies are other examples of how big data is transforming the investment landscape, in this case in passive investing. "Smart beta" is the name given to benchmarks whose membership is determined by criteria other than market capitalization. They rely instead on metrics such as dividend or value to construct an investment strategy.

Factor investing is a strategy wherein securities are chosen based on attributes associated with higher returns. While methodologies can differ, such strategies utilize an increased level of granularity when choosing securities.  

Data and technology will continue to play an increasingly larger role in how money is managed. Given how the invention of the Internet browser eventually radically transformed the retail industry, the disruptive power of new technologies in finance cannot be overstated. The asset management industry may be in the early stages of a similar process. But this time around, with more-advanced technology, higher penetration ratios and two decades of experience in innovation can truly transform the way we live.

Endnotes 

  1. Morton Glantz and Robert Kissells, "Multi-Asset Risk Modeling: Techniques for a Global Economy in an Electronic and Algorithmic Trading Era" (Academic Press, 2013).
  2. "Future of Fintech in Capital Markets," Deutsche Börse Group & Celent, June 20, 2016.
  3. CBS Insights, June 2016.

Matteo Andreetto is the Global CEO of STOXX.

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