With information overload clashing with lightning-fast trades, the human capacity to keep up — even among high-energy hedge fund managers — is being overwhelmed, or maybe it has been already. Investors have instant access to all manner of news, chatter and data relevant to their strategies, but sifting and organizing it fast enough to be able to use it for timely, informed trades is something else entirely.
Sensing a market among traders and portfolio managers who are constantly being inundated by a variety of data, developers have recently released a flurry of products meant to unclutter the crush of information.
“These companies are asking themselves, ‘How can we help a fundamental or quantitative trader effectively digest a huge volume of information and trade on it in very rapid time?’” says Josh Galper, lead manager at Concord, Massachusetts–based Finadium, a research and advisory firm for the financial services industry.
Adam Sussman, director of research at Westborough, Massachusetts–based TABB Group, a market research and advisory firm, says he has noticed a recent oversupply of news-aggregation companies. The demand for these firms’ services may be shrinking along with stock market values. He suggests that the only way to compete is to focus on usability: “How readable is your data feed?”
Three companies have recently released products that address the readability issue in different ways. For each, however, the focus has been on managing sources from which reams of data are flowing and finding a way to help buy-siders quickly draw what they need from that flow: NewsEdge v8, developed by Acquire Media Corp., organizes news from 600 publishing partners, ranging from the Associated Press and Dow Jones to the McClatchy-Tribune chain of newspapers and PR Newswire; SkyGrid claims the Internet as its data mine; and First Coverage aggregates intelligence coming from analysts at more than 300 sell-side firms.
Larry Rafsky, chief executive officer of Roseland, New Jersey–based Acquire Media, recalls how 15 years ago his company zeroed in on so-called machine-analyzed news, which it thought could be even more useful to traders than the pricing history of equities.
“The idea was much discussed in the ’90s, but it never really went anywhere,” says Rafsky. “Machines weren’t quite fast enough, and the programs that the computer scientists developed weren’t quite good enough.”
So Acquire tabled the idea and over the next decade worked on building an electronic infrastructure to funnel news into Web sites and data banks, creating an Internet-based service analogous to that of a cable television network. In 2007 the company bought NewsEdge from Thompson Corp., where it had been in development.
NewsEdge isn’t as simple as redirecting a high-speed digital news feed from one client to another. “It’s got to be parsed differently,” Rafsky notes. “You’ve got to get the spam out, and you have to decide what part of the stories you’re going to send.”
He adds, by way of explanation, that if 20 press releases come out of PR Newswire more or less simultaneously on a given Monday morning, any useful program has to know how to prioritize them. “It would be fantastic to cut hedge funds or broker-dealers in on the bigger flow we send to Web sites,” he says, “but it wouldn’t do them any good.”
In September, Acquire released NewsEdge v8, designed for client customization. The program lets a user filter what type of news appears on his or her desktop — a common feature in many such products. What NewsEdge v8 adds is the ability to analyze news and automatically execute trades based on content (a positive earnings report, say, can trigger a buy). The average user fee is $300 to $500 a month. Of the company’s 500 clients, more than half are hedge fund firms, Rafsky says.
Lloyd Brokaw, founder of proprietary trading firm First New York Securities and a user of NewsEdge v8, is drawn to the intuitive quality of the product. “I’m able to just click on one button and see Web sites like Google Finance without having to leave the system,” Brokaw says. “I’m not very computer savvy, and it’s very easy for me to use this.”
SkyGrid has taken what may be a more ambitious route. Instead of gathering news from established publishers, it plumbs the chaos of the Internet, sifting through an ocean of data to find information that meets portfolio managers’ and traders’ needs. The endeavor can only benefit from a Securities and Exchange Commission ruling in July that gives corporate blogs status as official sources for fair-disclosure compliance.
On screen, SkyGrid resembles a Bloomberg terminal: Color-coded headlines stream against a black background. A toolbar lists the stocks in a user’s portfolio, which determines which headlines appear. In perhaps its most whiz-bang feature, SkyGrid — which costs $500 a month but gives volume discounts — taps a “sentiment algorithm” that gleans tone from headline syntax, sorting good news from bad. Kevin Pomplun, founder and CEO of the Sunnyvale, California–based company, says that since the program’s release in February, more than 100 customers have signed on.
First Coverage, which declined to divulge what it charges, brings more sell-side reportage to the mix by acting as a kind of online matchmaker, helping clients decide whom they should spend their time listening to.
Company founder Randy Cass developed First Coverage by recalling a lesson he learned as a quantitative manager at the Ontario Teachers’ Pension Plan. He realized while working on the buy side that by deciding to focus on his relationships with a handful of sell-side analysts, he was missing out on a wealth of potentially more useful data.
“Portfolio managers and traders are probably ignoring 90 to 99 percent of the information at their disposal because they just don’t have the time or resources to deal with it,” Cass says. “There are a lot of very smart people, relevant data and larger aggregate trends that are unable — until now — to be captured or understood.”
Cass says he has taken to heart the advice of people like TABB Group’s Sussman who counsel usability above all, a characteristic he improved in his company’s July release of the 2.0 version of First Coverage.
At its core, Cass notes, First Coverage homes in on information otherwise lost in the clutter, granting its users an edge that competitors may not have: “It helps capture all the alpha that was slipping through the cracks.”
