ETF NEWS - ULTUMUS

Data data everywhere but not a drop to drink……

Written by Bernie Thurston | 16 April 2020

…to paraphrase Coleridge

There’s only been one story dominating the financial news over the past few weeks and that’s COVID-19. Every night we are getting used to having data both good and bad pushed our way across every news channel.  For those of us working across the financial markets we’re used to data a plenty and right now whether that be about the spiralling oil prices, the flows into Gold based ETFS, large index falls, negative bond yields or dividend cuts everything leads back to this unseen virus too.

Working for a data technology leader in the ETF and Index data space servicing all sides of the financial markets this got me thinking what the potential impact to clients is but also, more importantly, how now more than ever good quality, structured data can play pivotal roles in navigating your way through these times. In a world awash with data how do you make sure the data you are presented with is actually useful.

When we read of stories regarding the 30% decrease in the price of oil it may alarm some but for others it represents a once in generation opportunity for others. Portfolio managers and Risk departments may be concerned at large exposure to the banking sector or firms involved financing oil companies.

Data play a key role in not only understanding your exposure but in mitigating your risks. If portfolio holdings are not clearly defined in an easily query-able manner your firm is at risk at being over weighted in areas more exposed to these cyclical conditions. Having a managed data service which allows for your holdings to be defined in a highly structured way, understanding total look through exposure gives portfolio managers and their risk departments the best chance at ensuring there is no unnecessary exposure. The data users should be able to visualise the underlying data or query against it in an effective way instantaneously so that live exposure can be measured especially during volatile market periods.

This leads nicely on to the importance of being able to define each product in a standardised way giving transparency to clients on what different product offerings are out there. The big trend we see with new ETFs launching on our platform are the thematic and factor themed funds. Reference data may not be the sexiest of topics, however, quality reference data can allow clients to analyse the effects of different thematic and factored products during varying market conditions. Standardising classification definitions for products on the platform allows for comparable analysis of market trends such as comparing flows into different segments, providers, regions, etc. It can also allow for performance comparisons between products and issuers. I’m sure the person to answer in what market conditions does ESG perform best in is sure to make their firm a good sum of money. The power of data is in the eye of the beholder.

If the hunt for yield wasn’t a theme in the fixed income world for the past few years it certainly is now. With reports of negative yields becoming more common access to different asset classes is increasingly important. One story we have seen arise constantly these past few weeks is the inevitable rush to Gold as the markets struggle so perhaps having a platform with exposure to products of this ilk would be advantageous. Being able to understand Gold ETFs flows, compositions and performance could persuade a portfolio manager to use Gold ETFs in a way they had not previously considered. Having different asset classes fit within the same aggregated feed on a single platform empowers the user to really compare products before making that informed decision one way or the other.

Of course, in times of market turmoil there are also products designed to make money, I’m of course references the Inverse and Short Indices and ETFs. Traders wishing to hedge their positions from one market condition to the next or portfolio managers wishing to change their investments to reflect their market views should be exposed to a range of products at their fingertip. It may be easy to define a product as a Short or Inverse Index or Fund however giving scaling factors and look through to underlying compositions is where the real value add comes to traders and portfolio managers. Being able to validate this data and reconcile to NAV can give confidence in the products exposure but in contrast could equally offer arbitrage opportunities where this is not the case.

As I’ve navigated my way through various vendors, buy and sell side firms the power of data and the opportunities it gives users during difficult market conditions is extraordinary and this can be seen in many cases during the COVID-19 outbreak.

Opportunity is difficult to realise without data being managed in a well-structured, standardised way. Having a platform able to deliver not only quality but variety across a range of products marketed for different market conditions enables choice for clients and investors seeking varying strategies in tough market conditions.