New York – What are the primary trends in the alternative research space that have a solid ability to gain traction in the near future? We can think of three clear trends that have already begun: 1) a movement downstream, 2) a movement upstream and, 3) a movement over the pond.
The movement downstream is a trend away from aggregated data and towards first hand or primary data. The problem with aggregated data is that it is widely available and already has interpretation layered into it. The advent of highly evolved computational algorithms and modeling capability (and the need for raw untarnished data to feed into these systems) supports the current hunt for high quality, consistent primary data. One problem with this pursuit is that there needs to be a sufficient time series of these data points to benchmark, backtest and estimate new explanatory variables within these models. We have noted interest in this type of data from multiple sources.
There is also a drive to find industry consultants that follow, for example, clinical trials, medical devices, or retail store primary data. The searchers for this type of data are generally already utilizing expert networks. However, the expert network model has been coming under fire with allegations that they are releasing information that is non-public in nature. Here primary data, rather than conversations with those in the know, is even more appealing and proprietary than consultations with experts through expert networks.
The other fastest growing area in the alternative research space is research focused on “big picture” macroeconomic phenomena. In recent years, a number of new firms have arisen to provide broad analysis of markets, policy changes, and other general trends. One such firm is Medley Global Advisors, which provides policy analysis to the investing and banking communities. Another firm is Coburn Ventures, which attempts to identify broad changes in economic, social or political trends, and determine how these changes might affect technology and telecom markets.
As many investors have increasingly realized, the ability to time the business cycle remains the one of the most important contributors to the return of a portfolio. According to the academics, getting the market correct can contribute over 70% of the total return in a portfolio, while getting the sector right can contribute another 20% and getting the stock right contributes about 10% of the total return. For this reason, it is safe to predict that demand for quality macroeconomic and policy “change” research will continue to grow, or at least hold steady in the coming years.
And Over the Pond
Another phenomenon in the alternative research industry is the growing “internationalization” of research. As many research firms have realized, applying equity research models and techniques to overseas and emerging markets can be a great way to increase revenue. As such, current alternative models are being propagated into emerging markets, Europe and Asia.
One of the most hotly contested markets, of course, is the Chinese market. While still in its infancy, this market is growing at a blistering pace and will require alternative research to facilitate the liquidity of the market.
In the coming years, the downstream (primary) research markets, the upstream (macroeconomic and policy) research markets, and the international research markets are likely to continue growing–at least, until the markets are saturated again with sufficient research.