How to Invest in the Data Analytics Universe
Just about every company worth its salt today uses data and analytics to better understand their customers and better meet their needs. For some companies, such as Google, Amazon and others, data science is the very foundation of their business model - but these companies use data analytics in service of their broader core mission. The universe of public companies that actually provide data and analytics solutions is far smaller and harder to define, but includes industry behemoths such as IBM, Microsoft, Salesforce, Oracle et al. for which data analytics is only one element of their solution suite. There are also a number of other public companies that focus on the software and data infrastructure that enable data analytics.
Given the explosion of activity in this field in the past decade or so, it is not surprising that investors are looking for ways to participate in this growth. Advances in artificial intelligence and machine learning are revolutionizing many industries. There are a number of pure play public companies within various segments of the data analytics universe including marketing technology, risk/fintech and business intelligence sectors as well as pure play data aggregation companies. I explored the stock market performance of some companies in these segments in a prior post (https://www.marinanalytic.com).
A simple approach might be to simply invest in one or more companies with a strong data analytics focus. By way of example, an investment in IBM or Salesforce would give an investor exposure to the range of assets that these two companies operate. As the chart below shows, Salesforce has performed better than the broader market over the past 5 years while IBM has underperformed. Buying stocks is easy – picking winners is harder, even in a sector that is outperforming the overall market!
This caused me to wonder how else investors can better get exposure to this universe of companies? Letting the professionals do the work by investing in a technology index or an exchange traded fund (ETF) could be an easy way to diversify while still focusing on the data analytics sector (N.B. this post is not a recommendation for this type of investment or any particular stock).
I have previously described my construct of the data analytics universe as being comprised of some industry behemoths, companies focused on data and analytic solutions for a specific industry as well as a number of horizontally oriented solutions and software tools (https://www.marinanalytic.com/framework). For example, it includes businesses in sectors such as risk management businesses (such as fintech), and marketing technology companies. Likewise, it includes businesses in data intensive, regulated industries such as financial services and healthcare as well as less obvious areas such as manufacturing given the rise of IoT. In short, that’s a lot of ground to cover and a portfolio approach has some appeal.
This caused me to explore what funds are out there that are focused on the data analytics universe? I was surprised to find there were not many. Some of these funds include:
NASDAQ Financial Technology Index (Ticker: ^kftx)
The KBW Nasdaq Financial Technology Index is designed to track the performance of financial technology companies that are publicly traded in the U.S.
The Index began on July 2016, with 49 listed fintech companies.
Representative companies in this index include Paypal, Square, Visa and MC, Equifax, Fiserv, ACI Worldwide, FICO et all.
Global X Future Analytics Tech ETF (Ticker: AIQ)
The Global X Artificial Intelligence & Technology ETF (AIQ) tracks a market weighted index of developed market equities involved in AI and big data.
The fund started trading in November 2018 with 85 listed companies.
Representative companies in this fund include NVIDIA Corp., Netflix, Shopify, Adobe, Microsoft, Facebook et al.
Goldman Sachs Data-Driven World (Ticker: GDAT)
The Goldman Sachs Data-Driven World ETF seeks to track a bespoke index which leverages advanced technology to select and weight companies by a function of ‘thematic beta’ to provide precise exposure to theme.
The fund started trading in March 2019 Representative companies in this index include NVIDIA Corp, Amazon, Microsoft, Alphabet, Apple, Intel, Facebook, Adobe, SAP et al.
How have these funds performed both compared to each other and against the broader market over the past 12 months? Not surprisingly, the Future Analytics Tech fund and the Goldman Sachs Data-Driven World fund have tracked very closely given their similar profile and holdings. Both have handily outperformed the Fintech index, especially over the past few months perhaps reflecting the strong performance of constituent companies such as Amazon in the Covid era. The two tech funds have also easily outperformed the broader market, as measured by the Dow, over this same period.
The performance of these indices and funds is not altogether surprising, however I did anticipate that I would discover more funds dedicated to the sector. The AIQ and GDAT funds only started in the past couple of years, so there may be more data analytics funds emerging in the coming months.
There are a number of smaller publicly listed analytics companies warrant attention. There are also a number of significant businesses that are currently private but may go public at some point. For example, Palantir generates around $750 million in revenue and has recently filed to go public. Excluding the more focused fintech companies (and ignoring the plethora of rules that I’m sure exist governing what companies can be included in such a fund - this is not an article on ETF filing requirements), but it would be great to have exposure to a range of lesser known data analytics companies. Such companies include:
Alliance Data Systems (ADS)Data-driven Marketing (MCAP $2.4BN)
Guidewire Software (GWRE)Insurance (MCAP $9.8BN)
IQVIA Holdings (IQV) Healthcare data and analytics (MCAP $30.6BN)
Splunk (SPLK) Data platform (MCAP $33.5BN)
MongoDB (MDB) Data platform (MCAP $10.8BN)
New Relic (NEWR) Data aggregation and analysis ($4.4BN)
Alteryx (AYX) Analytics tools platform(MCAP $11.6BN)
Clarivate Analytics (CCC) Brand management (MCAP $11.4BN)
Microstrategy (MSTR) Business Intelligence (MCAP $1.2BN)
Teradata (TDC) Data and analytics software (MCAP $2.3BN)
PROS Holdings (PRO) Revenue management (MCAP $1.4BN)
Verint Systems (VRNT) Cyber Intelligence (MCAP $2.8BN)
Verisk Analytics (VRSK) Insurance risk (MCAP $30.5BN)
Quintiles IMS (IQV) Life sciences analytics (MCAP $30.6BN)
I hope that as the data analytics market continues to evolve, more companies will choose to go public. Of course, many private companies get snapped up by the industry’s big players as they gain traction and the downside of being a public company may deter others which may limit the investible population. In the meantime, we can all look to work for a startup that grows into a unicorn!
