How Alternative Data Can Lend Clarity Amid Uncertainty

Unusual times require more than the usual sources of information to assess the investing backdrop. Jeff Shen discusses how alternative data is making a difference today.

When conditions are not only unusual but evolving at a furious pace, as they have been since the novel coronavirus was identified early this year, clarity can seem an impossibility.

During such times, official data is often a mix of slow and noisy observations ― making it difficult for investors to develop a holistic and clear picture of the state of play. At the same time, many companies have been withdrawing guidance amid heightened uncertainty, making analysis at the industry and company level even more challenging.

Against this backdrop, alternative data and analytical tools take on new importance in identifying emerging economic and market trends that traditional sources can be slow to efficiently isolate.

What is alternative data?

Alternative (or big) data is physical, unstructured (text) or non-financial data generated by the technologies of our everyday lives ― smartphones, GPS and smart home devices, to name just a few. When aggregated and analyzed in the right way, alternative data can provide valuable insights into country, industry and company prospects.

The BlackRock Systematic Active Equity team has been using various forms of alternative data for more than a decade. Some data sources have proved particularly valuable this year, especially when analyzed with the right context in mind. Here we look at three examples and how they have been additive in assessing the macroeconomic and investing environment during the global coronavirus pandemic.

1. Foot traffic

Foot traffic around shopping facilities was one of the original big data metrics embraced by systematic investors early on, though its relevance has gradually diminished as a significant share of shopping has moved online.

Online buying is even more prevalent amid coronavirus-driven closures, yet foot traffic patterns have reasserted their importance in new ways. Differences in social-distancing policies have led to wide dispersion in activity across countries. We find that comparing foot traffic activity at various points of interest has provided a faster read on economic activity across countries and industries. Our readings at the end of May, for example, showed movement in China was more than two-thirds back to normal since re-openings began in March and April.