|
 Even though BlackRock replaced many of its fundamental active equity
managers over the past few years, a number of the firm's
stock-picking funds are underperforming. Investors have pulled $7.5
billion from the funds over the past year, according to Morningstar.
To address this, the world's largest asset manager is taking the
secret data sauce of its team of quantitative managers, academics
and data engineers and feeding it to all of its portfolio managers,
including its fundamental active equity team.
The goal: to arm its portfolio managers with data to give them an
analytical advantage. The information ranges from satellite images
of cars in retailer parking lots to shipping trends to word search
analytics in company earnings calls.
While big data has long been the domain of quants and hedge fund
managers, it is unusual for fundamental stock-pickers - who tend to
use analyst reports, earnings figures and their own research - to
rely on such wide ranging data.
If BlackRock succeeds, it could enable its stock-pickers to see
market opportunities ahead of the competition. The challenge will be
in getting these managers to understand what all the data means,
said Ken Kam, CEO and founder of Marketocracy, a data-dependent
online investment advisor.
"It will be a steep learning curve for them," Kam said. "That is not
to say there isn't an opportunity, but it's a whole other ball
game."
Fink, for one, is optimistic.
"We believe that if we can get insight through data, it will give us
a differentiated advantage," Fink told Reuters in an interview in
July.
To be sure, BlackRock could flood its managers with data and still
not win assets in an era when investors increasingly choose the
indexed investing that BlackRock is most known for. Nor is there a
guarantee that more data will boost performance, said Jason Kephart,
an analyst at Morningstar.
For example, BlackRock's own Emerging Markets Long Short Equity
Fund, run by the scientific active equity team, struggled in the
first half of 2014 partially because it had short positions in
Brazilian stocks when the country's market rallied after the
presidential elections.
The fund underperformed its benchmark, the Bank of America Merrill
Lynch U.S Treasury Bill 3 Month Index, by 1.2 percent, in the first
half of 2014, according to Morningstar.
Still, with fixed income investments likely to lose favor with
investors in coming months if the Federal Reserve, as expected,
raises interest rates, it is increasingly important for bond-heavy
BlackRock's active equity funds to shine, analysts say.
That's particularly true because the firm's active equity business
has the potential to generate bigger profits for the firm.
Currently, it makes up about 6 percent of the firm's assets under
management, but it delivered 15 percent of its revenue in the second
quarter.
Last quarter, the average fee BlackRock charged institutional
clients for its active equity strategies is 0.60 percent, compared
to 0.05 percent for the passive strategies for which it is better
known, according to Mac Sykes, an analyst at Gabelli.
And while performance has improved over the past year, only 22
percent of the group's fundamental active equity mutual funds
returned among the top quartile of their peers for the 12 months, up
from 8 percent for the past five years, according to Morningstar.
For analysts, the fundamental active equity performance is the only
thing holding back BlackRock's stock from going even higher. The
stock trades at about $335 a share.
[to top of second column] |
"For me the next big leg up in their stock is if they can improve
active equity," said Luke Montgomery, a Sanford Bernstein analyst.
"They have industry leading flows, but the story so far has been
about their ETFs and fixed income business."
NOWCASTING
One goal within the next 12 months for BlackRock is "nowcasting" -
using data and satellite imagery that could show how real-time
forces are affecting portfolios, such as how many cars are in the
parking lots of Wal-Mart Stores across the country.
While a quant manager might look at that piece of data to determine
how much U.S. consumers are spending, a stock-picker could use it to
grill Wal-Mart executives about sales, said Ken Kroner, head of
multi-asset strategies and head and chief investment officer of the
scientific active equity group.
The difficulty is determining what data is relevant and what is
noise, Kam said. "It's going to be a little like drinking water out
of a fire hose," he said.
ACTIVE 2.0
BlackRock has assembled a working group of portfolio managers drawn
from its quantitative scientific active group, its fundamental
stock-pickers and its fixed income managers, to figure out how "big
data" can help managers across the firm, Kroner said.
Its first project is an internal Web site where BlackRock's
portfolio managers can search a word, company name or phrase and
receive thousands of data bits, including earnings calls; analyst
reports; word search analytics, video and audio clips.
For instance, by combing through BlackRock's data hub, managers
discovered that the number of times that executives mentioned the
word "Greece" in their earnings calls last quarter was the lowest
since 2012.
That data allowed BlackRock managers to discount the potential risk
of Greece leaving the European Union while other investors were
selling shares on daily worries about a possible "Grexit," Kroner
said.
Data like this adds another layer to traditional stockpicking,
creating an approach that some say could be "Active 2.0."
Kroner knows the push into big data is not a panacea for active
equity.
"Active management will always be at its core about the
understanding of fundamentals, earnings growth rates and the like,"
Kroner said. "But big data does sure give us an edge over our
competitors."
(Reporting By Jessica Toonkel; editing by David Gaffen, Linda Stern
and John Pickering)
[© 2015 Thomson Reuters. All rights
reserved.] Copyright 2015 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
