5 Ways Satellite Imagery Elevates Hedge Fund Investment Strategies
To compete among the wild ebbs and flows of Wall Street and come out on top, high-level hedge fund investment strategy has no choice but to be diverse. Hedge fund managers absolutely must leverage a broad range of strategies — trading traditional and nontraditional assets alike, short selling, you name it — to reap above-average returns on investment. And those strategies can’t be built on shaky foundations.
Data, of course, is that foundation. This is why hedge fund managers are turning to fresher, more reliable, more of-the-moment forms of alternative data to get an edge over the competition. Satellite imagery is at the forefront of the alternative data movement, and it’s not just helping hedge funds perform better — it’s helping them outperform expectations across the board.
1. Make Opaque Markets Less Opaque
In an opaque market landscape, third-party sources provide representations of value that are often not just subjective but entirely unclear. As you might expect, this makes financial pockets that rely heavily on prediction — including hedge funds — particularly vulnerable.
Before democratized access to high-quality geospatial imagery was a thing, the unwillingness of various business sectors to disclose information is what made many markets so opaque. But when hedge funds can leverage satellite imagery to monitor crop output, they can get a handle on how raw supply might affect food prices on the shelves. When they can see the level of stock and activity at oil rigs, refineries and ports, they can predict how prices at the pump will affect consumer behavior. All of this and more affects marketplace opacity by increasing the speed and accessibility of raw, reliable data sets, freeing data from the restrictive hands of PR figureheads, industry scuttlebutt and slow-moving press coverage.
2. Energizing Hedge Funds
According to the International Energy Agency (IEA), energy investments rose to about $1.9 trillion in 2021. But to the chagrin of investors, that opportunity seems to scale with famously poor opacity. Oil companies don’t tend to make refinery outages public, and in the U.S., official government reports on oil inventory levels are weekly at best (and good luck if you want inventory reports from China). You already know that near-real-time satellite imagery circumvents the need to rely on these sources by offering a solid alternative data source, but the potential analysis of that data is a whole new ballgame for hedge fund investment strategy.
SkyFi, for instance, has a growing network of more than 90 satellites capable of monitoring every corner of the Earth and every corner of Earth’s energy industries. Keeping the oil industry example going, hedge funds can use AI to automate the process of identifying and cataloging the details of thousands of super high-resolution images at a time, essentially allowing them to inventory millions of barrels of oil-storage capacity worldwide. That inventory affects everything from gas prices to buybacks and bidding wars to on-the-shelf inflation. And access to that knowledge makes for unprecedented granularity that you won’t find in any governmental or corporate report.
3. Surveying the Supply Chain
When you pair granularity with the sort of innovative analyses that alternative data facilitates, you often get unexpected results. For instance, using bulk satellite images to monitor pollution levels at specific global sites can actually pinpoint accurate changes in manufacturing activity, indicating everything from factory closures to reductions or spikes in shipping traffic.
On a more direct level, hedge fund managers can get eyes on the supply chain at ground level. Shipping containers waiting at ports? Is rail activity ramping up compared to last year’s satellite pics? Commodity stockpiles that aren’t public knowledge? For hedge funds, satellites make proprietary info a whole lot less proprietary.
4. Performing Retail Recon
Time and time again, traders have found that the number of cars filing into and leaving the parking lots of big-box retailers like Walmart, Lowe’s and Costco provide highly accurate approximations of quarterly sales. While that data used to come at a premium, hyperdetailed satellite imagery makes these sorts of retail signals easily accessible daily. Getting ahead of that (literal) consumer traffic, space-eye views of distribution center activity — think shipping container locations and semi-truck routes — help hedge funds get a firm predictive handle on retail trends.
Speaking on parking lot traffic volume alone, Berkeley finance professor Panos Patatoukas says, “The informational advantage yields 4% to 5% in the three days around quarterly earnings announcements, which is a significant return over such a short window. If you annualize it, the number is staggering.”
5. Hedging Actionable Info in Near Real-Time
The thing about alternative data is that it’s not some sort of top-secret, confidential info source — it’s attainable info gathered and leveraged in creative ways. By democratizing access to satellite imagery, SkyFi is honing in on the “attainable” part, but we’re also concerned with accelerating the speed of information.
You’ve probably noticed a theme in the way hedge funds use geospatial imagery to their advantage: that data needs to travel at the speed of industry. At CNN, Thinknum co-founder Justin Zhen says, “The ability to know actionable information in near real-time is obviously a huge edge in a very competitive market.” Satellites in our fleet are updated just about daily, enabling you to license previously-captured images or those snapped from virtually any location at a future date, on-demand, from anywhere in the world.
That’s an immeasurable competitive edge that also happens to be about the size of an app. Get started today with SkyFi.
International Banker - How Satellite Imagery Is Helping Hedge Funds Outperform
International Energy Agency - World Energy Investment 2021
Berkeley Haas - Newsroom - How Hedge Funds Use Satellite Images To Beat Wall Street — and Main Street