Wayne Ferbert, Founder of Alpha DNA Investment Management, joins Julie Cooling, Founder and CEO of RIA Channel, to discuss the firm’s machine learning and data-driven approach to delivering alpha.
“We are using machine learning and alternative data sources to build a better equity portfolio,” says Ferbert on his firm’s differentiated approach to investment management. The alpha created by the technology is used to purchase hedges that reduce the downside risk of the portfolios.
Alpha DNA collects alternative data that allows the models to view digital interactions between consumers and listed companies. Data sources include app downloads and usage, web traffic, posts to Twitter and Facebook, and web search activity. “This digital footprint, creates an identity for the company, and when that identity changes over time, it tends to foretell changes in the company’s demand for the products,” explains Ferbert. By evaluating all of these data sources, the models aim to predict whether each company’s quarterly revenue is likely to beat or miss analyst forecasts.
Implementing a quantitative and systematic approach allows the team to eliminate the emotions of human investors, which can interfere with investment results. In 2022, the models had positive sector calls by overweighting energy and industrials and underweighting technology. Investors can access this strategy through separately managed accounts or through the AdvisorShares Alpha DNA Equity Sentiment ETF (SENT).
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