In an uncertain economy, managers look to alternative data

By Mark Burgess | March 29, 2023 | Last updated on October 30, 2023
5 min read
signs direction / sodafish visuals

This article appears in the last print issue of Advisor’s Edge magazine. If you’re a print-only subscriber, learn more about our digital transition and how to continue to receive all the best news and features on

When the Covid-19 pandemic hit, investment managers were stuck at home, watching markets tank, trying to figure out what was happening in the world. That’s when Bill Dague’s phone started ringing.

“The old models started to break down,” said Dague, vice-president and head of data product at Nasdaq in New York.

“We started to get calls from clients: ‘What’s happening with retail investors? What’s happening with global supply chains? Are airlines flying?’ There was suddenly this recognition that you couldn’t rely on previous patterns and experience. You had to start measuring in real time what was happening in the world.”

Alternative data — information not contained in company filings, analyst reports or other traditional sources — wasn’t new in 2020. An Alternative Investment Management Association (AIMA) report from that year traces the use of alt data to ancient Babylon, when merchants used measurements of the Euphrates River’s depth and flow to forecast market supply and make decisions on commodity trades.

In the last decade, however, data of all kinds has become more accessible as well as easier to store and process. Hedge funds were among the early adopters: AIMA said more than half globally were using alternative data by 2020.

Investors can now track credit card transactions, corporate jet movements and social media mentions. They can monitor satellite imagery and shopping mall footfall. They can scour employees’ online reviews to evaluate company culture, and track app downloads to anticipate the next Zoom.

What changed with the pandemic, Dague said, was the kind of content people were interested in, as well as the urgency. Before Covid, few investors were preoccupied with supply chain risk, for example. It became extremely relevant when manufacturing plants started shuttering in February 2020.

“Things that weren’t that interesting — maybe a little too macro, a little too high-level, not really sure how to make a trade on it — suddenly became interesting,” Dague said.

That’s continued as the economy and financial markets have evolved in unusual ways.

The surge in self-directed retail investors in 2020 and 2021 added an important new market dynamic. A website called Robintrack that kept up with investor flows by scraping data from popular U.S. DIY platform Robinhood was an early hit — until it abruptly shut down in August 2020.

“That day, we had clients saying, ‘I had a good view on what’s going on. Things are changing really fast and I don’t have it anymore. Help!’” Dague said.

Nasdaq ended up developing its own retail trading tracker.

Sadiq Adatia, chief investment officer with BMO Global Asset Management, said monitoring retail flows remains important. When retail investors surged back into the market at the start of this year, for example, investment managers were able to respond.

“If you have quality [stocks], you may not necessarily outperform because you’re seeing the retail investor jumping on names that are lower quality,” he said. “That can help explain some performance slack.”

As the economic recovery has progressed and sputtered, Dague said Nasdaq has introduced new products examining corporate hotel bookings to track the re-emergence of business spending on travel, and looking at retail sales in specific regions such as South Korea and Europe.

The latter region is fragmented, with multiple local economies making it challenging to provide a pan-European view. To get ahead of official reporting, Dague said Nasdaq has looked to point-of-sale systems, card issuers, banks and fintechs.

Meanwhile, certain data sets offered for years without generating much interest are now in vogue. One, called supplier-implied risk attributes, acts like a company credit score by tracking whether suppliers are paying their bills on time.

“It gives you a picture of the overall health of certain segments of the market,” Dague said. “It suddenly became very popular in the macro environment that we’re in.”

Adatia said his team used data examining traffic at Chinese malls and on transit to inform positioning in the popular China reopening trade. When Beijing announced it was removing Covid restrictions last year, investors piled in.

“What we were waiting for was the traffic volume to show something before we went further in our positioning. We didn’t see that at the outset,” Adatia said.

That changed in February. Just as the shine was coming off the China trade, the traffic data started picking up, he said. “That gave us a good buying opportunity to jump into it as the market pulled back.”

Adatia said this is the benefit of alternative data: using timely information to find patterns that give managers more confidence on an investment call.

Liyan Yang, a finance professor and the Peter L. Mitchelson/SIT Investment Associates Foundation chair in investment strategy at the University of Toronto’s Rotman School of Management, said there are two main groups of alternative data providers: those good at analyzing public data and translating it into valuable information, and those who can access private data.

Corporate jet activity, for example, which can show investors where company executives are focusing attention and offer hints at possible mergers and acquisitions, relies on public data from various sources, Dague said.

“You have to tie tail numbers to ownership information to radar tracking data [and flight] manifests,” he said. “It’s a lot to piece together.”

Satellite imagery of a Walmart parking lot, on the other hand, is private data.

“If you rely more on private data … you will be at risk if the data becomes more public,” Yang said. “You will lose your edge unless you find another set of alternative data.”

In fact, Yang said the definition of alternative data is constantly in flux. What’s alternative today may be considered traditional in a few years. That’s why managers are always looking for new sources.

It doesn’t come cheap. An AIMA report from 2021 said alternative data sets often cost more than US$150,000 per month. Another survey last year found most firms spend between US$1 million and $5 million annually.

Dague said Nasdaq has data hunters scouring for useful sets, but companies also come to him with data they want to commercialize. In either case, the sets must be properly vetted. That means making certain the vendor has the rights to what they’re selling and that the data is anonymized.

This compliance work is part of his firm’s offering, Dague said. Hedge funds, the primary clients, could find data sources directly but that would mean taking on the risk.

Regulators have recently taken an interest in alternative data. In 2021, the U.S. Securities and Exchange Commission brought its first enforcement action against an alternative data provider when App Annie Inc. and its co-founder agreed to pay US$10 million to settle securities fraud charges. The SEC alleged that App Annie — a large provider of market data on mobile app downloads, use and revenue — made material misrepresentations about how its alternative data was derived.

And last April the SEC issued an alert, warning investment advisers about inadequate practices at some alternative data providers.

Mark Burgess headshot

Mark Burgess

Mark was the managing editor of from 2017 to 2024.