“Hallelujah,” I thought to myself after reading Julie Segal’s article Investors to Managers: Cut the Data and Tell Me the Story! (Institutional Investor, October 31, 2017). Having spent the past twenty-plus years working with a wide variety of investment technologies and platforms, I am truly amazed at the current level of complexity and crowdedness found in the investment analytics space.

Despite the onward march of powerful technology, the explosion of investment options, and the nine-year bull run, I have never heard any investor tell me, “Evaluating my portfolio is much easier today.”

Why is that true? Shouldn’t more tools to slice and dice data be helpful? Shouldn’t having more product options improve our results? Shouldn’t strong, positively oriented markets make decisions generally easier? Doesn’t that seem to be the perpetual promise from all this…”progress”?

After logging thousands of hours in conference rooms around the globe, I have grown to appreciate the power of communication and simultaneously the limits of data. I have seen first-hand the mistakes of portfolio pitches and performance reviews that clearly fall under the heading of “make them deaf with data.”

The Supporting Role of Data

Telling a good story in those conference rooms is of utmost importance. Data alone doesn’t communicate well, but too often the emphasis is on the data. Rather, data should play a supporting role in a story. Ultimately that story must have sensible logic, validity to its intuition, and palpable credibility. I am thrilled to see Chestnut Advisory Group dive into and study this aspect of our industry. After all, it is in those conference rooms where trillions of dollars are allocated.

It seems to me that at a most basic level, every investor is asking the same three questions each quarter:

  • What happened in markets?
  • What investment product groups have benefitted most and which products performed best?
  • Where did my portfolio come in among all of this – and why?

Investment managers can only build trust and credibility in those conference rooms when they can answer those basic questions and tell a clear, straightforward story. Our clients are increasingly finding that despite the growing list of tools, analytics, and data available to them each month or quarter, creating and expressing that story can be difficult.

The Confusion of Proprietary Analytics

One of the impediments to crafting an easily understandable story is that many of the systems and tools providing inputs are not integrated. For example, what has happened broadly in markets is often the purview of index providers or exchanges. However, how they measure recent performance is highly proprietary. Next, asset managers will turn to trusted products like Morningstar, Lipper or eVestment for peer relative insights. All of these products have significant strengths in this area, but again, each applies its own proprietary classification and measurements. Lastly, in examining their own portfolio, managers will rely heavily on internal systems or large data aggregators like Bloomberg, FactSet, or Thomson Reuters. They may further employ multi-factor risk models for more quantitative insights. Obviously, these systems bring considerable power to computation, but again, apply their own view of the world.

Crafting an Effective Story

Armed to the gills with millions of dollars’ worth of analysis data and power, managers still struggle to combine all of these into an easy, frictionless story. Style Research has steadily identified a way forward using a single lineup of intuitive, fundamental-based factors to help managers tell that story. By curating factors that resonate easily with a broad investment community, and then applying the same factors using the same methodology across market, peer and portfolio views, a story emerges that is logical, easy-to-follow and resonates with intuition.

So kudos again to Chestnut Advisory Group for putting the spotlight on “the story” and making sure that data doesn’t become “the story,” but plays the role of supporting star.

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