In the age of big data, companies have to adjust to disruption


    The world is changing. The combination of the COVID-19 pandemic and a global recession has knotted supply chains. The fossil fuel industry, which has powered the modern economy for over a century, is finally giving way to a more sustainable future based on renewable energies. For the fourth time in modern times, human civilization is going through an industrial revolution transitioning from the digital age to the age of big data, and after more than a decade of low interest rates, currency devaluation is increasing.

    All of these inflationary forces are causing investors to look for something – everything – to generate returns and hold value over the long term, and many are looking for the answer to the biggest challenge the wealth management industry has seen since stagflation. My advice? Lean into the disorder.

    Extension of the term «raw materials»

    Asset management companies looking to take advantage of the current excitement need to update their definitions of age-old concepts. Raw materials, for example, are the building blocks of modern economies. However, in order to recognize opportunities in times of technological change, one has to be able to look into the future and see which technologies will dominate the landscape – and which raw materials are needed to make these technologies work.

    That’s why I’m not too concerned with commodity picking. We need to expand our investable universe to include the digital economy. So when I look at raw materials today, I think of data as a raw material, of battery technology, of wind, water and green energy technology. Raw materials that generate alpha for investors in times of intense change are, for example, semiconductors, which are crucial for the operation of data centers, lithium, which is crucial for the latest battery technology, or natural gas pipelines that can be retrofitted with hydrogen, which is used in the production of green and black energy is needed.

    Rethink the investment landscape

    Apart from the redesign of the definition of “raw material”, it is also necessary to rethink the investment in raw materials. Even for things like steel and crude oil, raw material prices offer a high barrier to entry. But there are no pure plug-and-play systems for raw materials such as data or even water. Instead, I start from our macroeconomic insights and use stocks to express the opportunities we find. Not only is this a better way to generate returns, it also allows investors to control volatility and minimize their risk.

    To do this, your tactics must be as advanced as your strategies. Index funds and passive strategies have enjoyed their time in the sun, but these funds assume that stocks will only go up. Passive long strategies have worked for the past four decades because the digital age and globalization were a rising tide that drove all boats high. The beginning of a new age of transformation means that there will be big winners – and bigger losers. Regardless of what you’re investing in, whether it’s commodities, cryptocurrencies, or bonds, you need to think bi-directionally and be prepared to mitigate the risk of bilateral volatility.

    Hug of the «crush»

    One way to prepare for an uncertain future is to use an approach my company calls «the swarm,» which was developed using the lessons of big data and machine learning techniques to simulate the power of the mob by the behavior and strategies of investors are imitated and reduced to quantifiable processes. At its core, the swarm is trying to internalize, formalize, and automate many of the processes invested in funds or funds or multi-strategy hedge funds and prop trading firms. In building an investable universe, choosing commodities and stocks is only the first step. Step two is to use swarm technology and algorithmic trading to distribute capital across the portfolio based on realized volatility, which allows us to present approaches that are normally not available to the public.

    In other words, identifying profitable commodities that will generate investment returns in an inflationary era is only half the battle. Just like the oil industry in the last century, data will power it in this century. This means that “raw materials” are everything from data centers to semiconductors to the components and materials used to manufacture them. Climate change is driving technological innovation in renewable energy, as well as water and food shortages around the world – two types of commodities that offer savvy investors significant opportunities.

    When the winds of change blow, some build walls while others build windmills. The best way for investors to do both seems to be to do both.

    Nikolas Joyce is Chief Investment Officer at The strategic fundswhere he’s going 20 years of experience in the development of quantitative investment research infrastructures and systematic trading platforms using the latest technology.

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