Journalists could provide fund managers with a new source of alpha as traditional investment information becomes increasingly commodified, a just-published AMP Capital paper argues.
The article, authored by Sydney-based AMP Capital portfolio manager, Trent Loi, says technology has both increased the availability of information and the speed at which it “gets arbitraged away”.
“… anyone trying to use publicly available information to make a decision is probably too late, as it will have already been factored into the price,” the paper says.
Fund managers have sought to break the data deadlock by tapping into private networks of ‘experts’ and using cutting-edge technology to gain bespoke investable insights.
“The problem is that many of these new, so-called edges are available to everyone, at a price,” the AMP Capital report says. “They are not proprietary and therefore become quickly adopted, thus diluting the advantage they provide.”
But investment firms could break the information stalemate by setting journalists on the beat, the paper says.
“… some savvy fund managers are turning to hiring journalists, who are skilled in uncovering hidden information and looking at publicly available information from a different perspective, in order to find a true proprietary edge in an increasingly competitive marketplace,” the AMP Capital report says.
According to the paper, the hire-a-hack strategy won’t replace fundamental research but journalists could make the investment process “more objective” by using sources of information outside the standard analyst closed loop.
The AMP Capital paper lists seven basic qualities of the journalistic approach that, allegedly, could spin funds management in profitable directions, including:
- resourceful research techniques such as the ability to “go out into the world and talk to people”;
- generalist skills that go beyond the narrow confines of sector-specialist analysts;
- a big picture approach;
- flexibility;
- speed;
- persistence; and,
- access to unique sources of information.
All of those skills could see fund managers reap money-making insights or provide the same value “as reading a newspaper” depending on how investment firms use their pet journos.
“While it is not yet a widespread trend in Australia and New Zealand, there are reports in the US that hedge funds are hiring reporters and even advertising on journalism jobs boards,” the AMP Capital paper says.
However, the report does not reveal whether fund managers pay hacks more than publishers: it is understood that fact is rumoured to be confidential, according to sources close to the matter.
