AlphaTech Spotlight: Mining for Alpha in a World of Information Overload

In this inaugural column by Bill Stephensen, AlphaTech Spotlight, he discusses one tool that allows traders and portfolio managers to sift through the mountains of information that can help in their decision-making process and give them a leg up in their quest for alpha.

When I was on the buyside, one of the biggest challenges I encountered was the management of information.  And it’s not lessening.  In today’s age of information overload, it isn’t just a challenge for money managers, but one for all business executives and knowledge workers.

Many of the technologies that I have seen in my due diligence of emerging technology companies involve streamlining processes for greater efficiency. This is necessary because investment professionals need to do more with less. The needs run the gamut. It could be distilling big data sets into actionable insights, organizing Street research or internal research in a way that allows for collaboration, or just better ways to filter and sort news to prioritize how and when it is consumed. There are many interesting solutions to better manage information. And this challenge will only continue to grow as more data is generated. According to the World Economic Forum, at the beginning of 2020, the digital universe was estimated at 44ZB (zettabytes) of data. However, by 2025, approximately 463EB (exabytes) would be created every 24 hours, worldwide [1,000 EB = 1 ZB]. That is approximately 169ZB of new data, yearly. Almost too large to fully understand, but the point being that data is growing exponentially, which means more information and even more interpretations, viewpoints, and overload.

Insights from Corporate Transcripts

Investment analysts and traders say their days get lost in information. They need ways to more efficiently discover insights in real-time or near real-time.  There is an increasing interest in using technology to extract insights from company executives.  With the creation of Reg FD in 2000, which required that all analyst conference calls be recorded, among other things, it created opportunities to systematically dissect these calls for potential alpha generative signals.  There are several companies doing interesting things around conference calls and public announcements, such as Amenity Analytics, AlphaSense, and Aiera.  They use technologies such as artificial intelligence (AI), natural language processing (NLP), transcription, and machine learning techniques to create insights from this data.

Aiera: Event Intelligence and Insights

One such company is Aiera, which presented at AIR Summit 5.0 in 2019 and is a member of our AlphaTech community.  Aiera has made connecting to any conference call as easy as one click with live transcription and audio.  This feature alone is helpful; I get an email when one of my portfolio companies will be starting their call, I click a link and automatically connect via my browser.  If I am working on something else or on another audio call, I can just watch the text transcription appear in real-time.  The technology can also be used for conference webcasts and other investor relations meetings in real-time or recorded for playback on demand.

Keyword and KPI Trends

However, what I really like about Aiera, is the ability to set up dashboards to monitor mentions of keywords or certain KPIs in different streams.  For instance, earlier this year, I set up a “coronavirus” stream that monitored the use of that word across my watchlist in any future or past call or article.  When I get an alert in the stream, I can easily click into the article or point in the transcript for further review.  I can also quickly compare mentioned terms over time by management, regulatory filings, broker research, etc. But one of the most powerful tools is the ability to look at trends in various keywords or KPIs over time in aggregate by industry or sector.  There are many ways to curate and save streams that can allow a trader or analyst to generate company, sector, or industry trends that can be significantly insightful and alpha additive in an investment process.

Expansive Event Coverage

According to Aiera, its global coverage includes 8,000 equities and 30,000 events, tracking 15,000 KPIs across 25,000 hours from meetings, annually. I don’t know how much data that is, but I know it is much more than any human can consume and extract insights from without a tool like Aiera.

Innovation Explosion

We expect to highlight other innovative technologies that can find signal from all the noise in the information that is available to institutional investors. Developments in this space continue to astonish as the quest for new undiscovered alpha becomes harder and harder.  There are new companies that continue to build upon previous iterations of ideas which will drive the resurgence of active management, especially in uncertain and volatile markets. Alpha generation reminds me of bitcoin mining, every newly minted ‘coin’ becomes harder to source over time as the complexities of mining is computationally more difficult.  Mining for alpha is becoming harder but the picks and shovels are evolving and getting smarter too!  In next week’s edition of AlphaTech Spotlight, we will be digging further into some of those tools.