Some of these ideas came from our very popular white paper, 72 Consumer Trends for 2022, but we have been using stacked trends in our long-running blog series on pumpkin spice everything, where we chronicled sheer absurdities like pumpkin-spice spam and pumpkin-spice ramen noodles. We prematurely declared that pumpkin spice is over in 2019, only to admit defeat in 2021.

So how do stacked trends play into Valentine’s Day? We will show you three searches, and you can sequence what happens at scale. We spotted the Valentine’s Day seasonality for certain terms while doing work for our 72 Consumer Trends paper. 

Roses 

We can see that searches for roses exhibit a very clear seasonal spike in the week of Valentine’s Day. The secondary bump in May is around the US Mother’s Day, celebrated on the second Sunday in May. Rose price spikes around that time are a favorite topic for economists. Even the World Economic Forum has weighed in, presumably after their famous Davos conference.

Plan B

Plan B (a brand name for levonorgestrel) is an emergency oral contraceptive pill. We also see the Valentine’s Day seasonality there as well. The big December 2021 spike was linked, in our view, to a controversial Texas reproductive law. What is more interesting is that the spike follows the roses search by one week: for example, in 2021, roses spiked during the week of February 7th, while Plan B searches spiked during the week of February 14th.

Pregnancy Test 

Closing the loop, searches for pregnancy tests spike dramatically in the 2nd half of March. We are not going to count the weeks for you but you get the idea. (Watch us going over the Fundamental Xray Dashboard loaded with 10 years of financials for pregnancy test maker Church & Dwight here.)

Get in touch if you’d like to learn more about using the Sentieo platform in your research process.

The post People are So Predictable, Valentine’s Day Edition appeared first on Sentieo.

“I did not know you could do that in Sentieo” is something we hear quite often from the users of our award-winning research platform, from advanced search, to complex screening and data visualizations. To address this frequent feedback, we decided to share some of our top webinars, guides, and blog posts in one place below. 

On Demand Webinars 

“Liberate yourself from Ctrl-F” (Part 2) – the Advanced user version of our Document Search webinar continues to be very popular with existing clients. We go over more advanced functions, such as document section searches, speaker searches, footnote searches, combining multiple Boolean operators, dynamic synonym suggestions, workflows around watchlists, qualitative factors, document trends, NLP heatmaps, NLP topics, redlining, table chaining and visualization, and more. 

“Advanced data visualization” – another Advanced version of our module-focused webinars, this webinar focuses on Sentieo’s data visualization engine Plotter. We go over advanced hybrid series such as rolling correlations, sector-level relative valuation and profit pool analysis, dashboard templates, benchmarking visualizations, and more. 

“Sentieo for ESG Research”– in this webinar, we go over how the full platform can be used specifically for ESG research, and ESG research management. We go over advanced queries, available ESG document sets, ESG-specific dashboards and visualizations. We also discuss the need for proper research management: from templates for notes from management meetings to proxy voting records to dashboards, version control, and auditability. 

Guides

 A New Approach to ESG Research Integration– this guide is designed to help institutional investors explore a new, integrated approach to ESG research management that can overcome the challenges and maximize the opportunities of ESG investing.

Gaining Competitive Advantage with Investment Research Through the Use of Artificial Intelligence and Other Technologies– this guide from Harvard Business Review Analytic Services looks at the direct applications of modern technologies in the research process, from tackling unstructured data to holistic workflow strategies. 

A New Generation of Research Management Systems– this Celent Briefing note goes over the must-haves in modern research management systems. Creating, systematizing, searching, and protecting internally-generated IP is a common problem for all knowledge-heavy organizations. 

Financial Data Visualization and Analysis Guide– in this guide, we go over a range of financial data visualizations and analyses in Sentieo’s data visualization engine Plotter. Every example has an embedded in-pdf video for a direct “how to” demonstration. 

Blog Posts

8 Ways to Integrate ESG Research for UN PRI Compliance (March 2021) – the increasing importance of the PRI initiative is evidenced by both the growth in signatories and AUM. In this blog post, our head product specialist goes over some of the ways our clients integrate ESG into their workflow inside the Sentieo research platform. 

Sentieo Platform Integrations Facilitate Enterprise Deployments (May 2021) – extensive integrations are a must for any research platform looking to unite internal and external IP alongside existing productivity tools like Slack and Outlook. In this blog, we go over some of the existing platform integrations currently deployed by our 1,100+ institutional and corporate clients. 

Freight Woes Threaten The Holiday Shopping Season (September 2021) – while the port congestion problems are headline news now, we saw the dire retailer inventory levels in the data back in August using our platform to analyze the sector. See the sector-level analysis and visualizations, and more.

Using AI to Find the Key Themes This Earnings Season: Office REITs Hurt by Slow Return to the Office (November 2020) – the “ great return to the office” has had several false starts globally. In this blog, we use Sentieo’s NLP applications to see what is happening in the sector, from section redlining heatmaps to transcript topic classifications across peers. 

To stay up to date on everything happening with Sentieo, follow us on LinkedIn, Twitter, and YouTube. 

The post Discovering Sentieo: Top Webinars, Guides, and Blog Posts appeared first on Sentieo.

Sentieo’s powerful and flexible Dashboards have grown dramatically in both client adoption and functionality since we introduced them two and a half years ago. Showcasing the depth of the research platform, the Dashboards bring together documents, document search, research management/research monitoring, financial and alternative data, data visualizations, Tableaus, iFrames, and much more, through over 50 different widget types. 

Sentieo clients can build their own Dashboards, and have access to pre-built general as well as industry- and function-specific Dashboards. Over time, we have rolled out specialized Dashboards such as Credit Position Monitoring (video walk-through), Special Situations (video walk-through), ESG Topic Monitoring (video walk-through), and our Sustainalytics integration (video walk-through and joint webinar). 

Following the high client demand for our recent Risk Monitoring Dashboard (blog post with video-walk through), today we are introducing two additional dashboards: US Macro and Credit Themes. Below you will find brief descriptions, screenshots, and video walkthroughs of both. 

US Macroeconomic Dashboard 

This Dashboard uses mostly our FRED Macro integration to bring in 21 data visualizations of various macroeconomic data sets, from GDP growth, to inflation, changes in the money supply, housing starts, and credit spreads.

If you’d like a more detailed walkthrough of the dashboard, please watch the video below.

Credit Topics Dashboard 

The Credit Topics Dashboard is useful for idea generation and general conditions monitoring. We see incoming mentions of terms like covenant breach and bridge loans, along with upcoming maturities, new issuances of both debt and equity, as well as data visualizations of the overall credit market conditions. 

If you’d like a more detailed walkthrough of the dashboard, please watch the video below.

To learn more about Sentieo, please visit our Resources page for guides and recorded webinars, or request a demo. 

The post Macroeconomic and Credit Topics Dashboards in Sentieo appeared first on Sentieo.

Creating compelling visualizations is now a must for a wide range of knowledge professionals, from investment analysts to portfolio managers to consultants and executives.

Data visualizations help create stories across investor presentations and letters, internal benchmarking reports, public presentations, and more. Sentieo’s data visualization tool Plotter combines financial, valuation, macro, alternative and internal data sets, and overlays an intuitive calculations layer on top, enabling accelerated analysis.

In Sentieo’s new multimedia guide, we go over several different use cases that demonstrate the power of the Sentieo platform. The full guide, with short in-pdf videos is available for download here.

Below we are sharing one of the use cases where we analyze revenue share and profit pool share in the US home improvement retail industry. 

Revenue Share and Profit Pool Analysis 

Analyzing sector dynamics is another foundational analytic activity that can be done quickly in Sentieo’s Plotter. Here we look at the dynamics of the U.S. home improvement retail market, and more specifically at Home Depot and Lowe’s, though the same approach can be used for more fragmented sectors. First, we aggregate the revenues for the two dominant players and calculate the revenue share. Then we do the same with EBIT as a proxy for the industry profit pool and calculate the respective shares as well. 

In these two visualizations, we can observe the following:

• Revenue share split has been fairly steady over the last 10 years, at 60/40
• However, the EBIT share split has been at 70/30
• This shows that there is room for further analysis regarding the advantage that HD has: economies of scale, customer mix (pro vs. DIY), private label penetration, and similar factors 

Revenue Share Analysis (interactive chart viewer)

Profit Pool Share Analysis (interactive chart viewer)

Watch this short video walkthrough of our revenue share and profit pool analysis:

Download the full guide.

For more extensive demos of the data visualization module in the Sentieo platform, please watch our recent Basic and Advanced Plotter webinars.  Or contact us to set up a demo or get a free trial account.

The post Introducing Sentieo’s New Interactive Guide to Financial Data Visualization and Analysis appeared first on Sentieo.

The recent spike in energy prices across Europe and Asia has been well documented in the press: however, it has been in the making for years. In this blog post, we will share some data on capex trends in the industry. We do anticipate that hydrocarbon energy prices will stay “higher for longer”. For a great in-depth look at capital cycles, we recommend the book “Capital Returns: Investing Through the Capital Cycle”. 

Starting with some of the larger names in the S&P 500 Energy Sector ETF (NYSE:XLE), we can see that capex currently is at around 2004-2005 levels of $8-$10 bn per quarter in aggregate, quite far from the peak of $25 bn+ per quarter in the 2014-2015 period. For this chart, we took the 20-year capex history for Exxon, Chevron, EOG, Pioneer, ConocoPhillips, and Williams. 

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The picture is very similar with the European supermajors, BP plc and TotalEnergies: their capex also peaked in the 2014-2015 period at over $15 bn per quarter and is now at around $5 bn per quarter (chart is shown in USD).

(interactive chart viewer)

The data looks very similar for the Canadian producers like Suncor and Canadian Natural Resources, as well as for large emerging markets-based players like Petrobras and Sasol. The most dramatic decline in capex that we spotted was that of shale pioneer Chesapeake Energy: at one time the second largest natural gas producer, the company went through a Chapter 11 reorganization. The company now spends about $100-$200 million per quarter versus $3-$4 billion per quarter in the early 2010s.

Interestingly, despite the strength of oil prices (WTI displayed, left axis), the total returns for the XLE Energy Sector ETF are flat on a two-year basis, perhaps indicating a long-term opportunity.

(interactive chart viewer) 

If you are interested in seeing how quickly we built the aggregate capex level chart in Sentieo’s data visualization engine Plotter, please watch the video below.

Find out more about Sentieo’s data visualization capabilities in our recent Basic and Advanced webinars focused on our data visualization engine Plotter. Or contact us for a demo or free trial account.

The post Oil and Gas: “Higher for Longer” after Years of Underinvestment appeared first on Sentieo.

Sentieo’s powerful and flexible Dashboards have grown dramatically in both client adoption and functionality since we introduced them two and a half years ago. Showcasing the depth of the research platform, the Dashboards bring together documents, document search results, research management/research monitoring, financial and alternative data, data visualizations, Tableaus, iFrames, and much more, through over 50 different widget types. 

Sentieo clients can build their own Dashboards, and have access to pre-built general as well as industry- and function-specific Dashboards. Over time, we have rolled out specialized Dashboards such as the:

• 39-widget “Fundamentals X-Ray” (video walk-through)
• Special Situations (video walk-through)
• Credit (video walk-through)
• ESG Topic Monitoring (video walk-through)
• Sustainalytics integration (video walk-through and joint webinar)

The new Risk Monitoring Dashboard (available to clients upon request) provides a comprehensive look at financial markets conditions across a variety of metrics, from macro, to credit, to equities, as well as aggregate NLP sentiment from transcripts, document trends, news, technical analysis, and more.

In the partial screenshot below, we display six out of the eighteen different widgets. Clients can add and delete widgets to customize further as well as share the dashboard internally with their team.   

For a detailed video walkthrough of every indicator included, please watch this video: Video: Sentieo Risk Monitoring Dashboard

If you are interested in building your own data visualization Dashboard in Sentieo, this is the “how to” video (including Sentieo’s data visualization engine Plotter, Tableaus, and iFrames): Video: Adding Data Visualization Widets in Sentieo Dashboards

Learn more about Sentieo’s data visualization capabilities in our Basic and Advanced Data Visualization webinars, or contact us to schedule a demo.

The post Risk Monitoring Dashboard in Sentieo appeared first on Sentieo.

Global supply chains are under significant pressure from COVID and other disruptions. In this blog, we look at inventory levels across leading US retailers, shipping company dynamics, as well as transcript color from recent conference calls.

TIP: If you plan on doing holiday shopping this year, do it now. 

We have been monitoring inventory levels across retail for over a year now. Last September, we collaborated with the Financial Times on looking at the aggregate inventory levels for over 30 retailers after the initial COVID disruptions. 

In one of our favorite data visualizations, we add up the quarter-ending inventory levels at eight leading US retailers: Walmart (also parent of Sam’s Club), Target, Home Depot, Lowe’s, TJX (parent of TJ Maxx, HomeGoods, and others), Best Buy, Dollar General, and The Gap Inc. (parent of Gap, Banana Republic, Old Navy, Athleta). 

In addition, we added the quarterly revenues for these eight leading retailers. Then we simply divided the inventory by the revenues for the most recent quarter. 

We can see that industry inventory levels, in relation to the industry revenues, are extremely low. The usual seasonality (inventory peaking at the end of Q3, and dropping at the end of Q4) has been severely disrupted since COVID.

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We are seeing the problems in conference calls as well. For example, transcripts that mention container/containers have skyrocketed in recent months. 

(interactive chart link) 

The picture is similar for related terms, such as “freight” and “bottlenecks.”

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To be sure, there have been beneficiaries such as shipping giant Maersk. We have seen strong and persistent revisions upwards of the 2021-2022 revenue estimates, along with a strong share price performance. 2023 revenue estimates have also been moving upwards but in a less dramatic fashion. 

(interactive chart viewer) 

The freight complexities are not limited just to trans-ocean shipping. Companies such as Fedex and UPS, are seeing increased costs for both labor and fuel, and have seen a contraction in their valuation multiples recently (using rolling NTM P/E for this example). Both multiples are now below their respective 5-year means.

(interactive chart viewer) 

We also looked for color from recent company transcripts, all from the month of September. 

Nike (footwear and apparel): container shipping times are double the normal

Keep in mind that there are global complexities and differences in transit times and sourcing mix across our geographies, so I’m going to use North America as an example to just go a little deeper on what I’m talking about. Prior to the pandemic, it would have taken approximately 40 days to move product from Asia to North America. Transit times have been increasing due to container shortages, port congestion, rail congestion and labor shortages, impacting the entire industry. And during Q1, these lead times worsened further to now sit at 80 days, roughly 2x normal.

Costco (retail): container and shipping costs are up six times 

Some inflationary soundbites, if you will. Price increases on items shipped across the oceans, some suppliers or us paying to 6x for containers and shipping. Price increases of pulp and paper goods, some items up 4% to 8%. Again, we’re trying to mitigate those where we can, and we think we’ve done a decent job of mitigating some of it.

General Mills (packaged foods): logistics labor and global container shortages will persist 

I guess we foresee labor challenges persisting for quite a while, I mean, especially if you look at logistics. So there’s a shortage of truck drivers here in the U.S., and that’s not going to abate for a while. There is a shortage in shipping containers as we look at global transportation. You can see them on pictures in the L.A. port. So that’s not going to be — go away for a while. And while we have seen a little bit of loosening in the labor markets once the government spending has kind of decreased, that’s not going to solve the whole — that’s not going to help solve the whole dilemma. So I would suggest that the challenges we have with labor and labor inflation are going to persist for quite some time. We have not really seen them abate significantly at this point.

Terex (industrial): the shortages are “irrespective of cost”

The ability to have available containers and ships to get the machines to the European market is definitely an issue irrespective of cost.

Cracker Barrel (restaurant and retail): 200-300% increases in container costs

On the retail side, we have similar pressures there. Those are more in terms of some of the shipping costs and container costs. As many of you’ve probably seen in a lot of articles, you see ocean freight containers are up at times from 200% to 300% over kind of contracted rates.

ConAgra (packaged food): supply-demand disbalance ongoing since COVID

The first piece is supply-demand bottlenecks, everybody knows that since the start of COVID, the level of demand for food companies’ products has been elevated. It has remained elevated. And with Delta variant and other labor issues, that has strained the supply chain of many companies in the space. I tip my hat not only to our folks, but other companies for working this very effectively to the best of their abilities. And it’s a day-by-day challenge, but I’m proud of the work our team is doing to keep servicing our customers and getting products to our consumers on the shelves.

Eaton (industrial): bottlenecks are “materially worse” in Q3 2020

I mean, clearly, the big challenge for us is really supply chain availability. Again, it’s been well-documented, the issues around semiconductors, resins, various types of metals that we source. And so coming into Q3, we really expected that we’d start to see some improvement in some of the supply chain bottlenecks. And much to our surprise and to the surprise, really, I think, of everybody in the industry, we’ve seen that things actually got materially worse in Q3.

Hasbro (toys and games): doubled the number of ports used to address the delays

We’ve added domestic ports in the United States. In fact, we’ve almost doubled the number of ports here in the U.S, we’ve added a number of ports that we are now using in Asia and in China.

Freshpet (pet food): equipment delays even for local food manufacturers

But we’re supposed to be starting up our second line in our Kitchens South, and we have 2 pieces of equipment that are coming from, 1 from Japan and 1 from Europe that are stuck at a port. And getting through the ports is a problem. So we have about a 2-week delay in starting up that line because we can’t get stuff moved through the port. Those kinds of supply chain issues are things you never worried about in the past, and now you worry about them.

To learn how Sentieo can take your research to the next level, request a demo.

The post Freight Woes Threaten The Holiday Shopping Season appeared first on Sentieo.

As we were doing research for our white paper with 39 post-pandemic consumer trends, one thing we spotted was the decline of interest in pet adoption. We included it in the section with trends that are “out” like sourdough, paint stores, and more (see extended blog coverage from earlier this summer here, here, and here). We can now affirmatively declare that the “pet trade” is over, at least for now. 

The fundamental trends remain very solid, from humanization to premiumization: however we are seeing revenue growth deceleration, and/or multiple compression with the “pure plays” Freshpet (Nasdaq:FRPT), Trupanion (Nasdaq:TRUP), and Chewy (NYSE:CHWY). In addition, recent IPO Petco (Nasdaq:WOOF) and SPAC deal Original BARK Co. (NYSE:BARK) have underperformed. 

For readers unfamiliar with these companies, Freshpet makes fresh (refrigerated) pet food, Trupanion is a specialist pet insurer, Chewy is an online pet product retailer, Petco was a traditional pet product retailer moving into digital health and wellness, and BARK (BarkBox) is a subscription treats service. 

We are seeing a decline of 30-40% YoY after the 100% surge in 2020 in pet adoption searches.

(interactive chart viewer)

The stock prices for the three pure plays with longer trading history have softened after rising together post-COVID.

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In terms of drawdown percentages, these stocks are down 30-40% from the recent highs.

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In contrast, companies with partial pet exposure (General Mills and Smucker for food, Zoetis and Elanco for health products) is about 12%.

The recent offerings, WOOF and BARK, are also below their highs. 

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Analysts’ revenue growth estimates for FRPT, CHWY and TRUP are pointing to decelerating revenue growth in the near future for all three. 

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We are also seeing a mean reversion in valuation (here, using EV/NTM Sales).

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In contrast, we are not seeing a similar valuation contraction in the multiples (NTM PE) for companies with partial pet exposure, like General Mills and Smucker for food, and Zoetis and Elanco for pharmaceuticals.

(interactive chart viewer)

To learn more about the data aggregation and visualization capabilities in the Sentieo research platform, we invite you to request a demo, or to view our recent Basic and Advanced data visualization webinars. 

The post The COVID “Pet Trade” is Over appeared first on Sentieo.

Recently we had the opportunity to present at the Neudata ESG Deep Dive 2021 event. Our presentation focused on where we see strong ESG effects in the financial markets along with a discussion on several accelerating ESG trends found in corporate transcripts. We’ll highlight some of our data visualizations in this blog post, and you’ll find access to the full ten-minute presentation below. 

As we have covered extensively before (see our blog posts on UN PRI compliance and ESG research integration), ESG is of growing importance to both institutional investors and to corporations. In one Neudata presentation example of the effects of ESG, we pointed to the dramatically increased dividend yield spread of the global tobacco industry, versus the US 10-year treasury rate. We took the unweighted average LTM dividend yield of Philip Morris International, Altria, British American Tobacco, and Japan Tobacco, and subtracted the 10-year US treasury rate. We can clearly see that “something happened” starting in 2019. The widening spread is prima facie evidence that widely adopted measures, such as negative screening aka industry exclusions (i.e. not investing in tobacco, thermal coal, anti-personnel munition, etc. companies) is very visible now.

Click here to access the interactive chart viewer

Most of our Neudata presentation focused on accelerating topics across all three ESG segments: Environmental, Social, and Governance. For example, in the chart below, we look at ten years worth of monthly transcript counts where corporations have mentioned “net-zero”. The acceleration in the last two years is nothing short of stunning. 

Click here to access the interactive chart viewer

At the end of the Neudata presentation, we “brought it all together.” We looked at the number of 10-K filings where the Risk Factors specifically mention “sea levels” against search interest for electric vehicles, vs. Tesla’s quarterly revenues. They are all rising, pun intended.

Click here to access the interactive chart viewer

Watch the full Neudata ESG Deep Dive presentation on-demand.

The post Neudata ESG Deep Dive: Our Presentation on ESG Trends appeared first on Sentieo.

Sentieo recently partnered with the Harvard Business Review (HBR) to publish a briefing paper explaining how research powered by artificial intelligence (AI) can provide a source of competitive advantage for investment firms. The paper highlighted how inefficient research processes can hinder a firm’s pursuit of alpha and while technology is part of the cause, intensifying the flow of information, it can also play a role in the solution.

In this first of a series of three blog posts summarising the paper’s findings, we explore some of the challenges that analysts face when researching investment opportunities.

Information overload

Companies across all industries struggle with the sheer volume of information they must process. Research by HBR in 2019 showed that 82% of respondents struggled with analyzing unstructured data and 77% relied on manual methods. The burden is even greater in the investment industry due to the regulatory demands of listed companies. The Securities and Exchange Commission alone processes around 3,000 filings each day.

Many analysts also need to research industry trends to build a credible investment thesis. That means combing through additional layers of information. For instance, one database of North American manufacturers covers half a million suppliers and has published 300,000 articles.

All this information comes in different formats, which makes it hard to collate. Analysts typically monitor a range of sources when researching a company. A news story on the Wall Street Journal may prompt an idea which requires further investigation through search engines, data terminals and reports. That’s why the information is known as unstructured- it comes as spreadsheets, PDFs, videos and even social media posts.

In the absence of a central platform, most analysts build their own system to track developments, manage the information they gather and share it with colleagues. How much of it gets lost in the process is anyone’s guess.

To uncover insights, analysts must spend countless hours sifting through the information manually. But that’s hardly an effective use of their time. Minor distractions, such as searching for an email, on their own may not cause much disruption, but they add up. Valuable nuggets of information could also be hidden in instant messages, Slack channels and transcripts from virtual meetings. These distractions eventually affect an employee’s happiness and productivity, especially when that employee is a highly qualified analyst.

You didn’t hire these well-paid individuals to organize information, you hired them to analyze it and come up with actionable ideas which will help your firm deliver benchmarking-beating returns. After all, information inefficiencies lead to alpha which sets active managers apart from passive investments like exchange-traded funds and index trackers. This added value has become particularly important as money flows out of actively managed funds and into passive funds.

Analysts need access to tools to do their job more efficiently, but the investment industry has traditionally been slow to adopt new technologies. So in the next blog in this series, we’ll explore how AI, machine learning and natural language processing can help to ease the burden of information overload. Alternatively, you can download the full briefing paper here.

The post How to Turn Investment Research into Competitive Advantage appeared first on Sentieo.

The State of ESG Research Management

With public, investor, and regulatory pressures rising to integrate environmental, social, and governance (ESG) principles and transparency into investment research and decisions, institutional investors are struggling to find, analyze, and centralize the deluge of information provided by companies and ratings organizations. 

In fact, research conducted by McKinsey in 2019 “highlighted that while 90 percent of companies report on sustainability, only 15 percent of investors can successfully integrate this information into their investment decisions.”

The lack of ability to effectively and efficiently integrate ESG factors into investment research workflows leads to a significant amount of time wasted by expensive ESG and fundamental analysts, missed insights that could deliver better results, and a lack of confidence in ESG-driven investment decisions.

ESG Investing: Mainstream & Delivering Results

ESG investing has come a long way since Who Cares Wins, the report that made the case for integrating ESG factors into capital markets, was published in 2005.

Long considered a niche investment strategy, ESG investing has become mainstream, with assets under management using sustainable investment strategies on the rise across the globe:

The US SIF Foundation’s 2020 biennial Report on US Sustainable and Impact Investing Trends found that sustainable investing assets account for $17.1 trillion or 33% of the total U.S. assets under professional management–a 42% increase over 2018.

PwC Luxembourg’s late 2020 report, The growth opportunity of the century, called ESG a “paradigm shift” with European ESG assets forecast to make up “41% to 57% of total fund assets in the region, compared to the 15% of assets ESG accounted for at the end of 2019.”

In 2019, research from The Economist Intelligence Unit found that 76% of Gen X and Millennials in the UK say “it’s increasingly important to consider ESG factors when investing.”

And from Morningstar to Morgan Stanley, JUST Capital, RBC Global Investment Management, and Goldman Sachs, research shows that ESG investing pays off in terms of performance and returns.

ESG Research Obstacles

Despite strong returns and rising interest in ESG investing, institutional investors continue to struggle with the best way to confidently integrate ESG factors and research outputs into investment decision-making processes.

Proliferation of documents and data

The growing amount of financial and non-financial data points and documents that need to be consumed by ESG analysts and the typically small teams doing primary research is overwhelming, requiring complex fact-finding exercises and use of multiple tools and channels for sourcing from:

• Publicly-traded companies
• ESG ratings organizations (such as Sustainalytics, JUST Capital, and MSCI)
• Sell-side research
• Industry oversight groups

Lack of transparency and standardization

There are no standards for corporate sustainability reporting and disclosures as there are for financial disclosures, making it difficult to validate claims and reconcile this information to make comparisons between companies.The same thing applies to the growing body of third-party ratings, all of which have their own methodologies for evaluating a company’s track record on ESG factors.

Fractured research workflows

With disjointed processes and systems used to conduct and track research across teams of ESG and fundamental analysts, capturing and auditing all of the source material and engagement interactions–internally across teams and externally with company management–is time consuming and resource intensive at best and nearly impossible at worst.

Regulation on the Rise

When it comes to transparency and standardization of methodologies and reporting to support ESG investment strategies, legislators and regulators are starting to step up, particularly in Europe.

Europe’s SFDR Deadline Approaching

The first major milestone in the European Commission’s Action Plan on sustainable finance is swiftly approaching, with a March 10, 2021 deadline for compliance with SFDR, the Sustainable Finance Disclosure Regulation. SFDR imposes transparency and disclosure requirements on institutional investors and asset managers, including:

• Written policies on the integration of sustainability risks in the investment decision-making process
• Information on the methodologies used to assess, evaluate, and monitor the effectiveness of sustainable investments
• Periodic reports on the impacts of sustainable investments

UNPRI Signatories Growing

Some 2,600 global asset owners and managers, representing $103 trillion in assets, have committed to incorporating ESG issues into their investment analysis and decision-making investment processes by signing the United Nations Principles for Responsible Investment (UNPRI). Compliance with UNPRI mandates includes:

• Incorporation of ESG factors into 50% of total AUM
• Centralized capture and aggregate reporting of both internal and external engagement on ESG factors

SEC Exploring ESG Disclosure Standards

With Europe moving full speed ahead on regulating ESG disclosures, the Securities and Exchange Commission (SEC) is looking to catch up with the agency’s investment committee recommending with creation in May 2020 of a framework for ESG disclosure.

A New Approach to ESG Research Integration

Positive performance and returns combined with growing public, investor, and regulatory pressures to integrate ESG factors into investment strategies is driving greater interest in a new, integrated approach to ESG research management that incorporates content aggregation, NLP-powered search, notes standardization, and compliance in a single platform.

Learn more in the guide we put together to help institutional investors explore a new, integrated approach to ESG research management that can overcome the challenges and maximize the opportunities of ESG investing.

The post A New Approach to ESG Research Integration appeared first on Sentieo.

Bloomberg’s terminal business has been scrambling to react to the new reality of the coronavirus-impacted institutional investment market. Having indexes drop 30% over the course of a week and then rebound over the next few months brings a lot of viewers and eyeballs to news services, but has also exposed two fundamental weaknesses in the thesis that portfolio managers and analysts will continue to use this mainstay of equity and market research. First, the instantaneous shift to work from home for an entire industry in New York, London, Hong Kong and beyond, and second, the reality of a deep recession forcing us all to reevaluate the long-held idea that using these terminals is just the (high) cost of doing business.

I’ve written previously about the impact of work from home on specific technology stocks, such as Zoom. With the growth of quant-based trading, investment management firms are increasingly known as technology-driven businesses, but the reality is that many of these organizations had been slow to adopt cloud computing technologies that would have allowed them to more easily transition to a remote work environment. If the largest public asset managers are an indicator, a significant number of portfolio managers and analysts suddenly found themselves working from home without the research, collaboration, or communication tools they needed to effectively do their jobs. Samples from recent earnings call transcripts to point to an interesting couple of weeks for those leading these teams.

Why have asset managers struggled to adapt to work from home? Many firms had simply not built any type of contingency plan for adapting processes, human interactions, and technology for remote work. Also, one of the worst-kept secrets in equity research is the sheer number of market data terminals that are shared by 5, 10, even 20 people in an office. Having that many people suddenly lose their terminal access (despite vendors like Bloomberg scramble to open up their “access from anywhere” features) caused a major disruption for investors and corporations alike. 

Perhaps the most notable capability lost in this transition is not the data feed at the core of these terminals, but the lack of dynamic collaboration that drives high-quality fundamental research. Fundamental research relies upon analysts and portfolio managers deeply understanding organizations or investments as a team. Without strong collaboration and communication, these teams really struggled to adapt. Arguably one of the most influential Bloomberg terminal features is chat and yet it wasn’t enough to maintain collaboration.

The second impact of the crisis has been on budgets. As nations around the world began shelter in place orders, CFOs, CTOs, and Research Directors began evaluating their research technology stack spend. According to Deloitte research, the banking and securities industry spends a higher percentage of their revenue on technology than any other sector and 52% of that spend goes on operational systems. For asset managers that means a lot of spend on trading and research software. While Q1 2020, according to the FT,  has shown a much more favorable return for many funds than expected, the overall shock to the economy is going to deliver a recession, of debatable length and “shape”. And while the forward redemption data cited in that article shows good news for funds, there are signs that 2 to 3+ month redemption requests are on the rise. This means operational and technology budgets are going to be impacted.

This, in turn, is going to mean cost-cutting and a shift to platforms with a deeper set of features and broader value. If you are a CTO of a mid-sized fund spending $24,000 for each of your 20 analysts and PMs, and faced with both a short-term economic hit, and a long-term shift away from active asset management, you are going to look at that cost very closely over the next quarter.

Short- or medium-term crises such as this one tend to accelerate rather than create industry change. An example of this is CBInsights’ report highlighting the fundamental disruption to Bloomberg’s terminal business. The crux of this argument is that the walled garden of the terminal model is being eroded by the commoditization and unbundling of the data in the terminal. The reality that there is a lot of research technology that analysts are using that are outside of their terminal—transcript summarization and sentiment analysis, automated model building, linguistic analysis—that are core to their investment thesis. Capabilities and data that were once unique are now commodities that can be accessed much more easily and at a lower cost. The wall for equity data terminal vendors like Bloomberg is no longer formidable—and the coronavirus crisis is only going to accelerate its erosion.

It is clear that Bloomberg style, legacy terminals have an incredible business and market dominance. But just as these dedicated terminals are not going to disappear from physical or virtual technology stacks at any time soon it is becoming increasingly evident that investors are reducing the number of terminals they have deployed while investing in a wider range of capabilities and data. Machine-assisted research and analysis are going to displace reliance on legacy terminals—it already has—and this crisis is going to accelerate that.

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