Stock research moves past
PDFs as customers demand more for their money
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[January 27, 2017]
By Anna Irrera and Olivia Oran
investment firms cutting costs and portfolio managers combating a
barrage of information, financial research shops around the globe are
looking for new ways to keep their product relevant.
A raft of startups have launched to support that effort, offering tools
that can use Google search data to get an edge on retail sales, deploy
drones to examine oil supplies or allow investors to rank analysts and
bid on their reports, like a Netflix or eBay of research.
Whether these innovations will lead to smarter investments, or be used
widely enough to prop up research budgets, is yet to be seen. But the
startups are forming alliances with banks, brokerages and investors by
the dozen. People who use and sell the tools say the trend is changing
how research is financed, distributed and consumed for the first time in
"We are coming up on a very different age for equity research," said Lex
Sokolin, global director of fintech strategy at Autonomous Research.
Investors now see research as a product that must stand on its own
rather than a freebie offered as part of a broader relationship with an
investment bank, Sokolin said. Technology can improve the quality and
distribution of research, he said.
A few factors are driving the changes.
Asset managers are under enormous pressure to cut fees due to weak
returns and competition from low-cost options like index funds. The fee
squeeze is making firms more selective about how they spend research
At the same time, the long-running practice of paying for research
through trading commissions is being upended by new regulations in
Europe, known as the revised Markets in Financial Instruments Directive,
or MiFID II. Part of the sprawling overhaul will force investors in the
European Union to pay for research directly. Global asset managers are
expected to "unbundle" payments in other regions as well.
Perhaps most importantly, investors say they are sick of their inboxes
piling up with run-of-the-mill reports each day. At a time when people
share snippets of information through WhatsApp and Slack and a tweet can
move a stock in seconds, sharing loads of PDF files through email is not
only passť, but makes it hard to know what is worth reading, industry
"There are 40 analysts just covering Apple: how do you find the
insight?" said Alap Shah, chief executive of Sentieo, a San
Francisco-based startup that aggregates information about publicly
Before launching Sentieo in late 2011, Shah was an analyst at Citadel
LLC, where he received hundreds of research reports a day. It was
difficult to search through documents for important information, collate
those details into one place and access them when he was not in front of
his office computer, he said.
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A computer screen showing stock graphs is reflected on glasses in
this illustration photo taken in Bordeaux, France, March 30, 2016.
frustrations led Shah to set up Sentieo, which allows users to search reports by
a stock ticker or hashtagged phrase like #revenuegrowth. They can also highlight
key passages and access information remotely. Shah says 200 firms are now using
Sentieo, including Longhorn Asset Management LLC and JNK Securities Corp.
DRONES AND DATA SCIENTISTS
Other startups are going beyond aggregation.
Customers of London-based StockViews can rate analysts with stars the way they
might rate a show on Netflix, and request custom-made research "on demand."
Edinburgh-based Electronic Research Interchange (ERIC) allows fund managers to
bid on analyst reports the way shoppers do on eBay.
Another company, Orbital Insight, uses satellites and drones to collect data
that can affect a variety of stocks, like how much oil is stored in tanks. In a
recent report, JPMorgan Chase & Co telecommunications analyst Rod Hall drew on
Orbital Insight research to tell investors there were fewer cars parked at large
electronics stores following the U.S. presidential election, which might lead to
lower smartphone sales.
Street banks say they are also using their own techniques to modernize research.
In interviews, executives highlighted data-crunching as a particular focus to
win more business from funds that rely on algorithms to make investment
Morgan Stanley's research team employs 30 data scientists in a unit called
AlphaWise to support research from traditional stock analysts. Last year,
Goldman Sachs Group Inc analysts used data from Google Trends and social media
monitoring firm Crimson Hexagon to conclude that Nintendo Co Ltd's Pokemon Go
was so popular it would affect future games it releases.
"Ten years ago, we would have interviewed consumers in a mall to figure out what
the hottest fashion trends are," said Simon Bound, head of research at Morgan
Stanley. "Now we will also use big data techniques and machine learning."
For a graphic on equity commissions and "unbundling" click http://fingfx.thomsonreuters.com/gfx/rngs/BANKS-FINTECH/010031KR3M3/BANKS-FINTECH-RESEARCH.jpg
(Reporting by Anna Irrera and Olivia Oran in New York; Editing by Lauren Tara
LaCapra and Meredith Mazzilli)
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