Crises such as COVID-19 can create significant levels of market volatility. Combined with the often-breakneck speed and volume of incoming information, this volatility can create challenges in wealth management. However, understanding the way markets react to events and sentiment can keep wealth managers a step ahead and help to generate new ideas for their clients.
- In a Refinitiv webinar, experts discussed how market psychology and data analytics are important during periods of volatility. They also discussed specific strategies that can be used in wealth management to understand the markets better and generate new ideas.
- The webinar found that only 19 percent of attendees believe analytics is widely used and integrated in their investment process, while one-third believe they would use sentiment analytics for investment idea generation.
- The speakers discussed a broad range of analytical tools and data sets that can be used to help the wealth management industry, including media sentiment, analytics, enhanced news, ESG data, and stock analysis and ratings.
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The volatility caused by the COVID-19 pandemic has impacted the wealth management industry in numerous ways. In particular, advisor-client communication has substantially changed.
Clients now expect more information, more often, and it has become critically important for advisors to engage with empathy; listen to client concerns, and provide peace of mind.
There has also been a substantial increase in the use of digital channels for client interaction. This shift to digital is in turn shining a spotlight on the role of analytics and media sentiment in supporting the digital revolution.
Media sentiment and analysis
We understand that information drives markets, and that sentiment can drive investors to accept or avoid risk. We have therefore developed Refinitiv MarketPsych Indices, which provides easy-to-interpret real-time analytics across news and social media.
MarketPsych has a variety of practical use cases and can help advisors create trading opportunities in instances where price changes may lag sentiment. For example, research suggests that good news and positive sentiment tend to drive higher prices. Having timely access to data and insights related to positive sentiment can therefore be helpful with stock selection.
The Stock Sentiment Heatmap enables you to quickly view the positive (green) and negative (red) media sentiment for top global companies based on the media ‘buzz’ (box size) in the market.
Refinitiv MarketPsych — Stock Sentiment Heatmap
In addition, media tends to turn negative before sell-offs, and being aware of this could help investors to avoid equity market corrections by analyzing sentiment early in the game. The graph below shows that media sentiment around Apple fell sharply in January 2020, before the price fell.
Refinitiv MarketPsych graph showing Apple Inc Price vs Apple Inc Sentiment
Moreover, in times of heightened volatility, analytics can deliver insights into the universe of stocks and reveal which sectors or markets are outperforming in a particular environment. Read our blog, ‘Can media sentiment help investing strategy?‘, for more insight.
Enhanced news and real-time insight
The sheer volume of breaking news, especially during times of heightened volatility, can be overwhelming, but Refinitiv’s enhanced news services help advisors and investors to keep abreast of breaking news and interpret the important signals that could impact portfolios.
Data is sourced from more than 6,000 global press sources, more than 1,000 real-time newswires, and over 3,600 web sources. This information is consolidated, aggregated and tagged using Refinitiv intelligent tagging to highlight important or relevant news.
Enhanced news services:
- Help advisors to identify relevant and significant news aligned to specific portfolio goals
- Enable faster interpretation of market-moving news
- Promote a better understanding of market sentiment to aid client retention and collaboration
- Offer key news and opinions to keep users up to speed with dynamic trends
ESG data trends
As investors increasingly factor the environmental, social and governance (ESG) records of companies into their investment evaluation processes, demand for quality ESG data is growing.
Initial research suggests that companies with favorable ESG scores experience less volatility and generally perform better in bear markets. Early indications during the COVID-19 pandemic support this view, with top-rated ESG stocks outperforming laggards in the pandemic.
Refinitiv’s ESG data objectively measures ESG performance and effectiveness across these three critical pillars and covers 80 percent of global market cap across 210 countries. It has over 400 metrics to help investors assess the risks and opportunities posed by companies’ and countries’ performance in critical areas, such as climate change, executive remuneration, and diversity and inclusion.
Stock ratings evaluation and analysis
Refinitiv Stock Reports Plus can help advisors to optimize their investment selection by simplifying the process of evaluating stocks, finding new trading ideas, and understanding industry trends.
These reports deliver a concise, but comprehensive analysis of the key scoring factors — including trends in earnings, fundamentals, relative valuation to peers, price momentum, risk, and insider trading activity — that have the potential to impact a particular security. The final condensed score can be compared with alternate securities or a benchmark of choice.
Reports are highly transparent, easily consumable, and can be used as an investment selection tool, or by investors wishing to understand more about the existing securities in their portfolios.
Perceptions move markets
At Refinitiv, we understand that perceptions and sentiment have the power to move markets, and further, that perceptions are influenced by a host of different factors ranging from social media observations to press releases and corporate statements. Analytics and sentiment should therefore be viewed as integral to the investment workflow.