S champonnois

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Big Data and Machine-Learning: What’s Next for Quantitative Investing Sylvain Champonnois, Active Equities

January, 2018

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A world of new possibilities for generating alpha

Source: BlackRock, September 2017. For illustrative purposes only.

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I want to talk about…

MINDSET

EXAMPLES

FUTURE

How we need to think to succeed in this space

Some things we learned along the way

Where we think things are going

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BlackRock Systematic Active Equity +30 years of Innovation

Research Focus Evolution

• +$100B AUM, a pioneer of quantitative investing

ESG/Impact Machine Learning

• Systematic investment management seeking consistent and high quality alpha

Big Data Macro Themes

• Research driven process blending deep investment experience and insight with cutting edge technology

Flows Earnings Quality Analyst Sentiment Fundamental Value 1985

1990

1995

2000

2005

2010

2015

2017

Source: BlackRock, September 2017. For illustrative purposes only.

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Mindset

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Toy model Skepticism Hostile

Thoughtful

Dangerous Knowledge

For illustrative purposes only.

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What is data science?

Source: BlackRock, September 2017, Toeplitz Inverse Covariance-Based Clustering of Multivariate Time Series Data. D. Hallac, S. Vare, S. Boyd, J. Leskovec For illustrative purposes only.

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Examples

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Feature combination Signal Performance

Stock­Specific Combinations

Stock Attributes

Source BlackRock: Data provided For illustrative purposes only, not meant to depict actual data

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ML Framework for Sentiment Based Signals Motivation: Reinforce every component of the model against the eventual objective (e.g., forecasting forward returns)

A stacked learner

Dictionary Learning

Time series Learning

Source: BlackRock, for illustrative purposes only

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How can we track consumption?

More leading Online Search

Website traffic

GPS traffic data

Satellite images

E-transactions receipts

Booked sales

Credit card data

More accurate Source: BlackRock, 2016, for illustrative purposes only

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Future

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Direction of travel

Small Data Low Dimensionality General, Linear, Static

Big Data High Dimensionality Customized, Non Linear Dynamic

For illustrative purposes only

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TALENT

STYLE: CULTURE, ENVIRONMENT, MARKETING

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APPLICATIONS AND BUSINESS MODELS

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Lots of stuff going on…

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DATA: LARGE, FAST, UNSTRUCTURED

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ALGORITHMS: MATH, STATISTICS, COMPUTER SCIENCE,

CODE: COMPUTE INFRASTRUCTURE, OPEN SOURCE

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Key Points

Big data and machine learning do not replace investing; but increasingly, they are necessary for great investing.

Our competitors for technology, and increasingly for human capital, are not financial firms; they are technology firms.

These techniques are actively used in our models in an effort to generate alpha.

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Regulatory information Past performance is not a guide to current or future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally.

The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

Š 2017 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES, BUILD ON BLACKROCK, SO WHAT DO I DO WITH MY MONEY and the stylized i logo are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.

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