A Quant Program Is the Reason You Just Bought That ETF
May 25 2017 - 9:35AM
Dow Jones News
By Sarah Krouse
At the exact moment a mom-and-pop investor considers buying bank
stocks, an advertisement pops up on their desktop promoting a
financials-focused fund.
The scenario isn't science fiction, it is BlackRock Inc.'s
latest business plan.
The world's largest money manager with $5.4 trillion under
management is developing a new advertising system that uses
sentiment analysis from messages on Twitter Inc. and other data to
help determine when to advertise specific funds in its vast lineup
of exchange-traded funds.
The effort, a partnership with advertising firm WPP PLC, is the
latest example of fund firms experimenting with new ways to attract
cash in an increasingly competitive market for low-cost
index-tracking funds. It shifts the use of computer programs beyond
investing to using algorithms to woo retail investors.
"The same value we get on the investing side from big data and
algorithms and looking at trends and responding to them -- we'd
like to do that on the advertising side," said Jennifer Grancio,
head of global business development at BlackRock's iShares ETF
business.
BlackRock competes with rivals including Vanguard Group, State
Street Corp., Invesco Ltd. and Charles Schwab Corp. for investor
cash in the $2.8 trillion U.S. ETF market.
The financial services industry spent $2.5 billion on automated
online-ad buying and selling in 2016, according to estimates from
market research firm eMarketer.
Algorithms have been a part of the digital ad-buying process for
years, where ad space is traded on exchanges like stocks in
financial markets. But BlackRock and WPP are now trying to apply
quantitative strategies to determine when to ramp up those trades.
These algorithms even adjust how much money the firm is spending on
such ads.
ETFs have become the epicenter of growth in the asset-management
industry, attracting hundreds of billions in new investor money in
recent years. They have tax advantages over mutual funds and trade
on exchanges like stocks. Money managers have raced to one up each
other on new product launches and ultralow fees.
BlackRock, which has cut prices aggressively for some products,
also is trying to respond faster to economic and political changes
that shape investor decisions. To do so, the firm is relying on
social media sentiment data and analysis of news stories to
determine which ETF ads to display.
Ahead of the U.K.'s June 23 vote to leave the European Union,
BlackRock advertised its iShares MSCI United Kingdom ETF, an
unhedged ETF that invests in U.K. stocks. It quickly opted to
switch the ads to a hedged version of the fund after U.K.'s
surprising decision to leave the EU.
But the money manager wants to do more and at a faster pace
while staying ahead of rivals. BlackRock is using analysis from
firms such as iSentium LLC to start ramping up or scaling back
targeted ads in sync with investor sentiment.
Funds also have another bridge to cross.
Hagan Major, co-founder of ad firm Yellowhammer Media group,
said asset managers face a balancing act in pushing targeted ads
about financial decisions without encroaching on the privacy of
clients.
"There's a very fine line between really effective and really
creative and something that feels invasive for a consumer," he
said.
Write to Sarah Krouse at sarah.krouse@wsj.com
(END) Dow Jones Newswires
May 25, 2017 09:20 ET (13:20 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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