Investment banks can benefit from online intelligence

Emmett Kilduff is chief executive at Eagle Alpha

It’s no secret that more bulge bracket trading desks are turning to online intelligence – predominantly social media – to obtain breaking news and views ahead of traditional wires. Yet, with constant pressure to get the edge over competitors, other departments of major investment banks will start following the trading floor’s lead, writes Emmett Kilduff

For research analysts and corporate financiers in particular, online intelligence – such as social media posts, blogs, videos, review sites, chat forums and data application protocol interfaces – offers a new level of insight into the companies, sectors and marketplaces they cover. It also contains an element of non-traditional, on-the-ground insight that conference calls or research analyst reports don’t offer.

Finding unique news and views can be tough when almost every other research analyst and corporate financier is talking to the same company executives or listening to the same calls. Those select few that currently have access to online intelligence – and the wealth of information on consumer sentiment that it holds – are uncovering unique content that can allow them to find an edge.

Research Analysts

Bulge-bracket research analysts are being pressed to add more value in their communication with the buy side. Here, the web is providing an untapped channel for on-the-ground insight about individual companies and the market segments they serve.

For example, Bernstein analysts have used Twitter to better gauge the reception of supermarket vouchers among UK consumers. Using an Eagle Alpha search tool, they found that Twitter provided a qualitative snapshot of how and why consumers were using vouchers and, more importantly, which supermarkets were doing better than others. Not only did they gather a better understanding of the consumer mindset from behind their desks, but they also included a valuable non-traditional insight in a research report regarding UK retailers on 28 August 2014.

In a similar vein, the web can uncover instant insights to key events. Take the launch of the iPhone 6. TMT-focused journalists and independent analysts were tweeting before they had even opened the box. Their reactions were being captured first-hand. Additional information could also be drawn from Facebook and chat forums. Social media effectively eliminated the long-time lag between their initial reactions and publication of their reports or articles, providing research analysts with immediate insight.

Corporate Financiers

Corporate financiers are constantly looking for ways to look smart in front of their clients. Online intelligence enables this.

For example, the most discussed technology theme at the CES conference in Las Vegas was IoT (“Internet of Things”). There were 2,693 tweets on wearables and related words during the event with tweet volume peaking on January 7th 2015. How many technology investment bankers, or their clients, analysed those tweets for insights and colour on wearables?

The web can be a great information resource regarding companies that Wall Street does not know much about. For example, there is a new entrant to the online property market in the UK, OnTheMarket. An industry blog provided unique colour on its business model and stated that equity analysts are underestimating the impact of OnTheMarket’s launch on rivals Zoopla and Rightmove suggesting each could suffer a £20m drop in profits in 2015.

Today’s barriers and tomorrow’s opportunities

So why haven’t more research analysts and corporate financiers and analysts tapped into the web for intelligence? Simple – word of the usefulness of online intelligence is just beginning to spread across Investment banks.

There is also the issue of being able to separate the signal from the noise. Here, curation is key. Banks need significant resources to be able to curate the web, implement the appropriate filters and flag relevant developments as and when they happen.

The skill set needed for this level of curation includes a mix of data science, engineering capabilities, the ability to translate languages and a team of curators with equities and fixed income experience. Bulge-bracket banks are therefore much more likely to outsource web curation.

Until they do they are missing out. The amount of actionable intelligence on the web will continue to grow. Videos are an interesting area, more and more companies are posting videos of their products and services (e.g. Tesla factory tour) and interviews with divisional management (e.g. head of International Business at Alibaba Group’s Taobao).

Eventually, we could see more departments within investment banks follow suit, utilising online intelligence to offer non-traditional colour on stocks and macro plays. But before that happens, research analysts and corporate financiers must continue to embrace online intelligence as an emerging, valuable source for business-generating ideas.