Demand for alternative data grew significantly in 2020 as institutional investors sought to understand market volatility from more dimensions. This growth means that datasets that were previously the domain of hedge funds, discretionary asset managers will be more accessible to non-institutional investors as well, to make equally informed decisions.

Having seen the value of alternative data over, or in combination with, traditional data points now means demand will only increase. Combined with the continued explosion in data generation and the ongoing development of machine learning models to make sense of the new data being generated, the ability to identify patterns and relationships that were previously unknown will be key for investors’ alpha generation and risk management abilities.  

Quantity of data of course is not enough. Data companies must demonstrate the ability to provide quality investment signals available in datasets, gaining market traction as the market develops a greater understanding of how to distinguish reliable insights from those that are not. 

The Covid evolution

No theme can be looked at in isolation from the grander changes 2020 brought into play. Availability of new automation, self-learning and communication technologies and a workforce accustomed to working remotely will change the nature of work forever. Now that it’s been proven, it’s hard to see it going away across the board. 

More broadly, after the learnings of 2020, the location will be less relevant than a company’s ability to deliver insights that were previously unavailable as the world has learnt to work in a globally connected, virtual environment.

On a macro level, as countries recover from economic contraction, new industries will emerge as self-reliance returns to the agenda for many countries. There will be a greater focus on industrial and infrastructure-driven activities as governments look to shore up their economies and lick their wounds inflicted from 2020.  

A responsible recovery

2020 was meant to usher in the ‘Decade of Action’ to deliver on the United Nations' sustainable development goals and, alongside this, ESG investing moving more into the mainstream. 

However, as the pandemic took hold, immediate crisis management overrode the focus on longer term goals. While climate crisis risks may have temporarily taken a backseat to dealing with the impact of Covid, investors have remained focussed on ESG and the different data points needed to track its performance. ESG investing may have looked different in 2020 than would have been expected at the start of the year, but it was not derailed. Moving forward, with the fresh perspective that this year brought, responsible investing and progress towards sustainability goals will again be front of mind for companies and investors.

The pandemic has re-focused the need for large scale cooperation and responsibility. In the investing world, this is encapsulated by ESG investing, and as this gathers momentum, so too does the need to leverage alternative data when monitoring a stock's changing perception of ESG performance, in real-time. We are also seeing machine learning technology reach a point where it can now derive reliable, previously unavailable investment signals, across increasingly growing volumes of data.