3 July 2017
Over the past week Australian shares were up 0.3% with small company shares up 0.7%. In the US, share prices were down 0.6%, shares in developed countries lost 0.4%, while emerging market shares fell 0.1%. The Australian dollar increased 1.6% to 76.89 US cents. The 10 year bond yield in Australia leapt 0.23% to 2.60%. In the US, the 10 year bond yield increased to 2.30%, up 0.16%. The oil price recovered half of its five-week slide, up 7.0% to finish the week at 46.04 US dollars per barrel. US economic growth in the first quarter was revised up from 1.2% to 1.4% quarter-on-quarter.
The world is flooded with information and analysis with technology making a lot of this readily accessible. However not all information is equal; some is accurate, some less accurate and there is much information to wade through. In the technology age information doesn’t include just facts but also estimates, analysis and opinions with varying quality. This poses a challenge for individual investors and fund managers as to what information they should rely on to make investment decisions.
Rather than simply distilling the sea, some ‘active’ fund managers look for novel sources of information. Here are some examples:
Some fund managers pay private firms to compile information on customers. For example, this could be the number of cars in a car park, spot checks on service quality or direct surveys of customer product choices.
Some fund managers will hire specialists to provide expert opinions which will help them analyse a company. Examples include the use of geologists to provide a second opinion on mineral reserves or medical experts to provide insight into treatments for particular illnesses.
A startling example is that some managers have begun using satellite data, taking regular snapshots of the world’s major cities. Applying some high-school trigonometry to the length of building shadows, they can determine how quickly construction is proceeding each day. This provides unique insight into economic activity, construction and demand for building materials.
All of the above are examples of information ‘asymmetry’; fund managers having information most other market participants don’t have. This information is expensive to source and process, and isn’t commonly known. This potentially provides them with an edge in a competitive marketplace for active returns.
At Mine Wealth + Wellbeing we invest through fund managers, the majority of which are active managers. Selecting managers is difficult; if they tell everyone about their secret sources of information then competitors will hear and replicate and they will quickly lose their edge. It’s therefore important that our team can successfully identify fund managers which have this edge.
In this sense experience is crucial. If you’re new to investment management, the first time you hear a fund manager’s pitch or see their systems can leave a strong impression. Each of our research team members hold over 10 years of fund manager selection experience. They’ve met hundreds of fund managers and are equipped to identify managers who have an edge over their peers, giving them a greater likelihood of outperforming for our members.
Dr. Sean Anthonisz | Senior Quantitative Analyst – Asset Allocation
David Bell | Chief Investment Officer