Wikipedia’s crystal ball: Hedge funds must raise their game to beat web analytics

May 10, 2013 6:58 pm

Wikipedia’s crystal ball

Hedge funds must raise their game to beat web analytics

First it was the factory worker who was made obsolete by technology. Now it is the hedge fund manager who looks increasingly redundant – and not just any hedgie but Wall Street’s finest. The Financial Times this week revealed that tips given by the best and brightest at last year’s Ira Sohn conference – where the industry’s stars offer their investment advice to raise money for charity – failed to outperform a passive US tracker fund. But even trackers struggle to compete with Wikipedia or Google. Academics have found a direct correlation between market movements and the number of visitors to articles on companies or financial topics. Wikipedia, the online encyclopedia, is best for predicting when the market is about to tumble, according to a paper published this week by academics from Warwick Business School, University College London and Boston University. The more page views on financial subjects, the greater the chance the Dow Jones index will fall. Last month the same team found that a trading strategy based on Google searches for the words debt, profit and loss could deliver well above average returns.Hedge funds should beware. In 2011, according to Hedge Fund Research, the average return was negative 5.2 per cent. That compares with a gain of 15 per cent using the Wikipedia formula.

Once lauded as Masters of the Universe for their ability to move markets and demand multimillion dollar fees in the process, many of these high-volume traders are in danger of losing their unique selling point. The industry’s domination of daily volumes on the US and UK markets has made it more difficult to devise strategies that differentiate one fund manager from another. The results are showing in ever more pedestrian returns. And, if that were not incentive enough to go elsewhere, Wikipedia offers its services for free. Higher productivity and lower costs – now that must really worry the hedgies.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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