Alternative Data

In Kyle’s corpus, alternative data shows up as the raw material of a quant strategy and as a cautionary tale about edge decay. The richest treatment is Inside the Rise and Fall of Coatue’s Quant Fund, where Coatue’s short-lived quant fund built its breadwinner on a dollar-neutral credit-card data strategy — long ~50 stocks forecast to beat consensus, short ~50 forecast to miss, using revenue-acceleration and delta-to-sell-side-consensus as factors. It produced double-digit returns in 2018 (a bloodbath year for hedge funds) but returned just 2% in 2019 as capacity constraints bit and larger funds caught on. The piece notes that “credit-card data is one of the most widely used subsectors of alternative data” — i.e., the edge had commoditized away. The vendors named in that account (Yodlee, Earnest, Facteus, IRI, Consumer Edge) are the supply side of this market.

The broader lesson the source draws is that an alt-data signal’s value erodes precisely as the data becomes widely available — a structural reason a systematic strategy built on it can stop working even when the model itself is sound. It connects to Data in Investing, the larger question of whether and how data science can be melded with traditional fundamental investing.

Context: “Alternative data” is the industry term for non-traditional datasets used by investors to forecast company performance — credit-card transaction panels, satellite imagery, app-download and web-traffic data, geolocation, and similar — sold by specialist vendors and consumed mostly by quantitative and fundamental hedge funds.

Where this appears

• Inside the Rise and Fall of Coatue’s Quant Fund — credit-card data as the fund’s core signal; a cautionary case in alt-data’s edge decaying as the data commoditizes; vendors Yodlee, Earnest, Facteus, IRI, Consumer Edge named.