Day to Data

Leading indicators are a way to look at the world through some data lenses. They put economics into numbers and leave it up to us to interpret it. No single leading indicator alone works as a crystal ball unfortunately but putting a variety of them together can help us shape a picture, a bit like a jigsaw. As times change, the wealth of traditional metrics is complemented by modern data sources (websites, credit card spending, web searches and more). James Gerlis eloquently introduced how we use this to our readers last year. In this month’s Bugle, we are going to take a look at further alternative data and applications, as well as some features that can make this type of analysis even more powerful.

This is all about adding more colour to the fairly black and white picture that analysts forecasts give us for a company. Building on this, we have aggregated visits to websites of companies belonging to the same peer group, to obtain a proxy for how the various sectors are doing. When we then look at the result, a year-on-year comparison would normally be our choice, but given the disturbance of Covid to 2020, we prefer looking at a two-year stack.

Looking at the chart below, a clear theme this year has been the strength of Home. The sector benefited from Covid as people started spending more on improving their living spaces, which have now also become working places. A subsequent normalisation (albeit still growing double-digit) started in April but recently seems to have reverted. If this continues, it would then indicate a more structural change in consumers spending patterns. Leisure recovery has been steady this year and has stabilised in June without changing much since then. Travel has been recovering this summer as it gets easier to move around, although the risk of an abrupt change of direction cannot be ignored going into winter. We average all the sectors into one series we call ‘Consumer Impulse’, to have an overall feel: we are back in positive territory as of March, and the most recent data would suggest a re-acceleration.

Consumer Impulse 2YoY Growth – “Tellworth UK Sector Dashboard”

An advantage of looking at sectors is that it naturally leads to comparisons between their constituent companies. This ties in with another analysis we do when looking at website visits: comparing short-term/long-term moving averages to detect any acceleration or slowdown. This helps us identify what brands are breaking out. We call these ‘movers’. It is important to remember that acceleration needs to be looked at in conjunction with absolute growth levels, as these are ultimately what define the current health of the website. The picture below is an extract of the top/bottom movers in the Home sector for the week just ended.

Movers – “Tellworth UK Sector Dashboard”

Another way to gauge consumers interest (besides checking website visits) is to look at how frequently they have searched for certain keywords. That is what our Google Trends dashboards help us do. The picture below is a chart taken from a wider set of UK consumer proxies previously discussed by Seb Jory in our “How they spend it” piece. As we look at online searches in the UK for words relating to personal credit (Amex, PCP, loans), we can see demand recovering after tracking close to 30% below ’19 levels. What the trough tells us is that the consumer has extra cash, and a key question going forward will be whether this stays as a cushion or is used to spend. As of now, it looks like the consumer has opened up their wallet, with the clear catalyst being the July restrictions lift.

Credit – from “Tellworth UK Search Interest Panel”

As with every trend, identifying peaks and bottoms early on can prove very insightful and give a time advantage to understand what the drivers of the change are. Our data dashboard allows us to quickly spot trends that are worth analysing further. Website visits, keyword search, credit card spend…we think all this alternative data can help us better gauge where sectors are heading, and eventually get a sense for how individual companies are tracking. It does not come as a substitute to traditional metrics and fundamental/bottom-up analysis, not least meeting management teams and quizzing them directly on the trends we see, but it is a powerful addition to our arsenal of macro-tools. As consumer-facing companies shift more of their sales online, we think this data will become less and less “alternative”, so understanding it early on can prove quite useful.

Disclaimer

The views and opinions contained herein are those of the Tellworth Investment team. They do not necessarily represent views expressed or reflected in other BennBridge investment communications or strategies and are subject to change.

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Tellworth is a UK and European equity investment management boutique which launched in partnership with BennBridge Ltd.

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