While the benefits of social media were not immediately recognised by asset managers, and indeed the financial services industry more broadly, it’s acknowledged now by most firms that social media provides a platform on which companies can build their brand and connect with their target audience.
It is also widely accepted that tracking and collecting ‘social data’, as part of the infamous ‘big data’ trend that we keep hearing about, offers a plethora of consumer insight that can help enhance sales performance and improve client satisfaction. To give you an idea of just how widely social media is accepted in the industry, PWC’s June 2016 #socialmediastudies report showed 89 per cent of asset managers are now present on social media.
But social media might just be the gift that keeps on giving.
Perhaps the most interesting development is the recent assertion that tracking social media could help investment professionals forecast, and even beat, the market. AXA Investment Managers revealed recently that it has begun using data tools that allow it to track tweets, news articles and other information on the internet to help it ‘predict market movements and better gauge the performance of the companies in which it invests’, the FT reports.
The idea that consumer sentiment affects the stock market has long been acknowledged (Keynes, 1936), but what is exciting is that firms are now able to adopt new technology and capitalise on social media – and the insight into consumer sentiment it provides - to get ahead of stock market trends.
The FT has reported that although mainstream asset managers have been slower than banks and hedge funds to experiment with artificially intelligent tools that can scan online information such as tweets and news articles, a growing number of fund houses have begun to look at news flow and social media analytics to improve their performance.
One example of social media platforms harnessing the power of social data is Foursquare - whose app requires its users to check-in and share their activities with their friends. Foursquare is now selling its data to fund managers, which essentially tells them where consumers are going and what they are doing there. This data has then been used to accurately predict footfall and sales at companies such as Apple and Chipotle. But how exactly?
Imagine that by using the aggregate data trends available through apps such as Foursquare, you could see that your chosen stock is falling out of favour – before this was reflected its share price. For example, Pointe72 Asset Management chief market intelligence officer Matthew Granade told Business Insider UK that one analysis revealed more millennial women were shopping for shoes at DSW than at Macy’s.
However, social media does have its flaws. Primarily, while a lot of the data produced by social media is categorised by investor sentiment - much of what is posted on social media cannot be determined as categorically positive or negative as the behaviour of those posting is often random and ad hoc.
But if traders and fund managers are planning to use social media to inform their buy and sell decisions then this begs the question - how accurately can investor sentiment be linked the future financial performance of a company stock?
To answer this question, it is clear that managers tracking social media need to fully understand at what point social media data becomes actionable and this is where more traditional stock market analysis retains its importance. While social data can add value to your business, there is also a need for research, dedication and time to ensure you make the right decisions.
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