Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 365

Six types of big data are unlocking real insights

The use of big data in investment management has been revolutionary, but harnessing its potential is the next big challenge for the active asset management industry. Big data is the residue of information that we all leave behind as we buy things, sell things, browse the internet, use our smartphones and generally live our lives. Alpha, or excess returns, is not in the data itself, it is in how data is processed and creatively interrogated. Big data without data science lacks any power in uncovering insights that can deliver real alpha.

It all depends how the data is used

Despite the buzz that big data is generating within the research-driven world of finance and investment, achieving an integrated approach to using it is far from easy. Alternative data can be opaque or even misleading. Amid the hype, many will forget that big data is of little use without the combined insights of experienced data scientists and investment professionals.

So-called ‘big data’ is proliferating. At the same time, advances in cloud computing, machine learning and artificial intelligence allow extraction of coherent, strategic insights from these digital residues. Combined, as data science, they have the potential to be a richly-enhanced source of information about our world. It is information that is deeper and more detailed than we have ever had before, and yet also broader and more comprehensive.

In simple terms, data science potentially brings unique insights into the inner workings of a company under diligence. Most investors wait for quarterly earnings updates or an occasional meeting with an executive. Data science now enables tracking in near real-time the sales of a company and its competitors, the morale of its employees and their view of the CEO, how a new product launch is being received in a given market, research and development budgets, as well as numerous other key performance indicators.

These insights, sometimes unknown even to the company itself, give an advantage over the competition as they allow for a differentiated view of the company’s earnings power, or at the very least minimise impairment risk. Data science often provides insight into the operation of a business at a deeper level than is communicated more broadly, and in public reports.

Examples of big data opportunities

For example, credit card data is a popular form of alternative data but often it is used to infer total top line revenue in a quarter. This can contain significant bias and errors. Data science provides methods to detect and correct bias. In addition, statistical methods can be used to reveal demographics and psychographics in the data. Classifications of the data panel members by gender, age, urban density, income band, and buying preferences, etc. can be revealing about the cohorts and composition of the customer base and growth areas of a business. When evaluating a company it is important to know if the growth is from more customers, or from more loyalty spend by the same customers.

Online activity is another source of data science insight. Searching for something that a customer intends to buy is a leading indicator of the actual purchase. This leading indicator is particularly useful for higher cost items that are often considered for weeks before a purchase. Online transactions also provide insight into the competitive environment that the company of interest operates in, as well as a measure of the advertising spend in various channels.

Job listings provide a wealth of insight into the way that companies are growing, but this involves the use of data science methods to analyze the text of the job description. The descriptions show the areas and geographies where the company is growing, and within the text the company often signals the products from other business that they prefer to use.

Six categories of opportunities

Overall, many of the data science research hypotheses fall into one of the following six analytical categories:

Three years ago, we added a data science capability to its team of nearly 650 investment professionals. While many in the firm have come to quickly embrace data science, the recently-launched Global Equities Data-science Integrated strategy (or ‘GEDI’ for short) is the first to fully integrate data science with fundamental research and ESG engagement.

Of course, different strategists working to different time horizons will make different buy and sell decisions, but whatever they do, they will now be informed, to a greater or lesser extent, by the additional depth and breadth that these data science insights bring.

State Super’s senior investment manager, Andrew Huang, said of these new data-based techniques:

“To us, Neuberger Berman appears to be meaningfully ahead of the curve in building and implementing this approach. We believe that supporting fundamental research with a solid data-science and ESG discipline will be a growing advantage over time”.

Data science is not a replacement for traditional investment research, but a complement that brings a fresh and sometimes counter-intuitive perspective. It is not a technology support function for investment professionals but an extension of what they already do. For the same reasons, simply hiring a team of data scientists and setting them to work is not necessarily going to enhance an investment manager’s search for alpha. Finding a common language with which to integrate that team into the existing research flow that investment teams generate is critical.

Ultimately, we believe those who engage with big data seriously and ethically will find it transformative.

 

Michael Recce is Chief Data Scientist at Neuberger Berman, a sponsor of Firstlinks. This material is provided for information purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. It does not consider the circumstances of any investor.

For more articles and papers by Neuberger Berman, please click here.

 

  •   8 July 2020
  • 2
  •      
  •   

RELATED ARTICLES

Charlie Munger on Buffett, gambling, Apple, and China

Five steps to become a better investor

Five reasons fund managers don't talk about skill

banner

Most viewed in recent weeks

Why have Australian living standards 'fallen' and how do we fix it?

For the last few years there has been much talk of a 'cost-of-living' crisis in Australia and of 'falling living standards'. Lately this has flared up again with the pickup in inflation resulting in a renewed fall in real wages.

Will you run out of money in retirement?

Fear of running out has become a defining retirement anxiety. Why do some retirees die with substantial wealth while others deplete their nest egg? Evidence suggests the answer is more complicated than we think. 

Four options for an income investor’s next dollar

What if Australia’s golden age of dividends is ending? Rather than overhaul your portfolio, it may be worth considering where new capital can work harder. I discuss four income strategies and the trade-offs behind each.

The investment that sidesteps the new tax traps

Tax rules have changed, but many investors are still using yesterday’s strategies. Insurance bonds may offer advantages for those seeking greater control, tax efficiency and certainty about their wealth.

Testamentary trusts have secured the CGT exemption

Treasury’s latest CGT reform draft delivers a win for testamentary trusts and deceased estates, exempting estate-derived gains from the 30% floor. However, questions on death and divorce rollovers remain unresolved.

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

Latest Updates

Retirement

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

SMSF strategies

Who really loses from the SMSF borrowing ban?

The ban on borrowing to buy residential property inside a self-managed super fund was framed as closing a loophole for the wealthy. Yet ATO data suggests its effects may be felt more heavily on members with moderate balances.

Investment strategies

The investing rule that explains the next market crash

What if investment success depends less on picking the right assets and more on understanding the decisions of other investors? A principle borrowed from game theory offers a different perspective on markets.

Investment strategies

Gold: should you own the metal or the miners?

Gold is back in the headlines but investors may be asking the wrong question. Before deciding where prices are headed next, it's worth considering whether the investment you choose will deliver the outcome you're actually seeking.

Fixed interest

Global bonds markets are hiccupping

For decades, investors looked the other way as government debt ballooned. But a reckoning may be beginning. Bond markets are stirring and the consequences could reach far beyond markets into everyday life.

Property

Why investors are looking beyond traditional property sectors

A little-known corner of the property market may be quietly benefiting from powerful demographic and healthcare trends. Could this specialised sector offer investors something increasingly difficult to find: enduring demand?

Retirement

Retirement in reality - 6 months in

Is retirement really an identity crisis, or is something else at play? New insights challenge conventional thinking and reveal why some retirees struggle to fully embrace life after work.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.