Finding a Proxy for Good Market Data

The secrets proxy statements can tell you.

Through these documents, sent out by public companies in advance of annual meetings, shareholders learn issues on the agenda, voting procedures, backgrounds of individuals nominated for the board of directors and juicy details on executive compensation.

But if you're a manufacturer of mutual funds, you can also find out which wholesalers are performing the best moving your products. And, in the process, what the hottest channels of distribution are, at any given time.

For instance, in the first quarter of this year:

* Broker-dealers sold $144 billion worth of shares in mutual funds and exchange-traded funds, had $1.8 trillion under management and saw those assets grow 8.62%

* Registered investment advisors pulled in $122 billion, had $1.5 trillion under management and saw those assets grow 8.57%

* Wirehouses brought in $102 billion, had $1.5 trillion in assets under management and saw their assets grow 7.45%

Where does all this data come from? Not from proxy statements. At least not directly.

Instead, it comes from using the counting of shares done for corporate voting and re-applying it to tracking how the fund distribution business works.

That proxy voting infrastructure has been built by Broadridge Financial Solutions. In conjunction with consultant Strategic Insights, its Access Data unit re-applies the share information to show, for starters, how different distribution channels are performing.

"Macro data'' is taken from a monthly sample of roughly two billion data points a year, according to Access Data President Dan Cwenar.

While that is a mound of "big data,'' what's being aggregated is really fairly straightforward: how many shares of a particular product are held in the account of each and every "ultimate" shareholder.

Then, the sampling can show how many shares are held in a given zip code, city, state, region or the country as a whole.

In this case, it's not information on individual stocks that is being tallied, but rather packaged products, Cwenar said. Shares of exchange-traded funds, closed-end funds, variable annuities and managed accounts.

Users of the data can learn the value of shares being held as well as the flow of the shares. This, "helps them understand how they're doing at a region, state, city and even office level," Cwenar said.

A manufacturer can see how its large growth funds, for instance, are doing in Chicago versus other parts of the country or the entire market for such funds.

And, how it is doing against the competition, in a given Morningstar category. The aggregation of shares can show if the subscribing manufacturer ranks, say, fifth in Chicago, first in Indianapolis and last in Miami.

But behind or ahead of whom?

That it does not learn. Because all the data is kept anonymous-except if it is the company's own.

"We don't name names,'' Cwenar said. "We protect your anonymity. We don't show your data to anyone else. We don't show anyone else's data to you.''

But a user can get even more "granular,'' if so desired, with "micro data" that gets collected.

The infrastructure Broadridge maintains takes in details on trades in "on a day-in, day-out basis, from every relevant platform," Cwenar said.

That allows categorization of the data in great detail, down to product, branch and representative.

The name might be hidden, as the data gets turned into code language. But the manufacturer gets to see just how Dealer 57 in Akron is doing with that new 2X inverse tire industry ETF.

The data also gets used then to calculate how much to pay a wholesaler and deal with other such operational issues.

Among customers are Legg Mason, Oppenheimer & Co., Natixis and BlackRock, the world's largest asset manager and progenitor of iShares, the biggest brand of ETFs.

The first customer was Charles Schwab & Co. Now, the Broadridge unit inhales every transaction that occurs on its trading platform involving 550 funds and reports it back to 550 fund manufacturers, according to Cwenar.

Using the Schwab Access Intelligence service, the fund firms can see progress by RIAs or by product or other slices. And Schwab itself uses the platform for sales reporting, distribution reporting and data analysis.

This provides "a level of visibility that hasn't previously existed by simplifying the exchange of information between mutual fund families and distributors," said Doug Hanson, Schwab's vice president of shared strategic services.

Now, in its case, Schwab can see how many shares of a particular product are held by all Schwab customers-and all fund sponsors it serves get to benefit from the benchmarking that the data can produce.

"I think that level of visibility has not existed before on our platform. I think it will be a big win,'' for investment management firms, Hanson told Money Management Executive, when the service was in development.

For reprint and licensing requests for this article, click here.
Mutual funds Compliance Money Management Executive
MORE FROM FINANCIAL PLANNING