BlackRock is using robots to better predict the future of the economy
Reuters / Fabrizio Bensch
- BlackRock's Macro GPS tool is designed as an improvement to traditional economic indicators, and is intended to give investors a more forward-looking outlook.
- The firm is using the big data quantitative insights provided by its Scientific Active Equity team to further hone the GPS indicator.
Economic data can be a double-edged sword for investors.
Sure, it serves an valuable input for traders deciding where to put their money, but it's also largely backwards-looking. So while it's undoubtedly useful, it's often up to investors to calibrate their own economic outlook.
BlackRock realizes this, and is here to help.
The $5.7 trillion investment behemoth is offering a proprietary indicator called the BlackRock Macro GPS, which is designed to swing economic forecasts forward and provide more actionable information for investors. Officially, the tool's purpose is to "show where 12-month forward consensus gross domestic product (GDP) forecasts may stand in three months' time."
In other words, it's trying to give investors a heads up about any potential economic shift.
And it's an improvement on the old model in multiple ways, including the number of data sources from which it pulls. BlackRock specifically looks at indicators like realized activity, employment, sentiment, and survey data, among others. In the end, the GPS is looking to build on models developed by academics, central banks, and other financial institutions.
However, perhaps the most novel attribute of the GPS is how it factors in so-called "big data" findings. Calling on its Scientific Active Equity team - which uses quantitative techniques to process massive amounts of data - the GPS squad is able to overlay hugely valuable analysis on top of its core economic findings.
"We often found that we were getting conflicting signals," Jean Boivin, PhD, head of economic and markets research at the BlackRock Investment Institute, told Business Insider by phone. "It wasn't clear how much weight we should've been assigning to the more traditional sell-side indicators, relative to our own proprietary big data signals. That led us to try a more systematic way of marrying these inputs into one indicator."
So what kind of big data capabilities does BlackRock's Macro GPS have? For one, it mines the transcripts of corporate manager conference calls to assess the tense being used. Boivin notes that they like to look at the ratio of future tense to past in order to predict what kind of investing companies will do in the future.
The GPS also factors in elements like satellite images and traffic patterns. For example, Boivin says the Scientific Active Equity team is currently working to use shadow measurements for buildings to analyze the speed and progress of construction activity in China. While not officially part of the GPS yet, the initiative shows the ambition and scope of what the team is doing.
"It's something that's getting more and more traction," Boivin said of the GPS. "We're not aware of anything that marries all of this data in the way we are."
As of right now, BlackRock offers the GPS for the US, UK, Germany, France, Italy, Spain, Japan, and Australia. But it doesn't plan to stop there. The firm wants to eventually enter emerging markets like China - perhaps using the shadow-measuring technique. It's all part of the firm's plan to give trader better and more actionable economic data.
"We have our sights set on the EM bloc, which is the next step," said Boivin. "But our primary focus right now is becoming an even more innovative source of data."
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