Big data: Seeing investments in an entirely new way

Across American society, big data is shining a brilliant light on previously obscure relationships. Marketers use people's web searches and purchase histories to offer up their most irresistible offers. Political campaigns transform ages, education levels and zip codes into targeted messages that aim to boost support at the ballot box.

Data of every kind allow us to see and measure all aspects of our lives — including how people invest. At the same time, our ability to crunch and curate vast amounts of environmental, social and governance data is helping us see investment opportunities in an entirely new light. In fact, we just celebrated the internal launch of Nuveen's ESG Data Refinery one of the first big-data ESG technology platforms to enable more informed investment decision-making using our 50 years of intellectual capital.

We are big believers in big data's ability to demonstrate how good ESG practices may help performance, while managing risk and generating positive outcomes for society. Our investment and data science teams seek to uncover good investment opportunities using big-data in multiple asset classes.

Public Equities

ESG information may give you an investment edge

As the old adage goes, "you cannot manage what you cannot measure." Traditional valuation models like discounted cash flow can help assess financial risks, but they often fail to capture the complete picture. Intangible assets — which are impacted by financially material ESG risks and opportunities — now compose as much as 87 percent of the market value of the S&P 500.1 Using alternative data sets such as material ESG factors allows us to detect otherwise underappreciated opportunities for increasing alpha, as well as underestimated risks.

Processing data with Natural Language Processing (NLP)

The most up-to-date information on most companies tends to be the new — this is true for information regarding financial data as well as information about ESG issues. While the news may not cover all issues, it is the most expedient source. NLP, a branch of artificial intelligence, allows machines to interpret human language, and in this context allows investors to gain insight from hundreds, if not thousands, of news releases. For quants, this is a fruitful area to explore, as it speeds up the availability of information. For fundamental investors, this would make a powerful complementary tool. Some specialized ESG data organizations have already made headway into this area.

Public fixed income

New frontier in ESG analysis shines a new light on municipal bond valuations

Big data is also revolutionizing how we assess opportunities in the municipal bond market by uncovering relevant ESG metrics that can help sharpen our view of risk. Two seemingly identical cities with the same credit quality may suddenly reveal stark differences when we apply our proprietary analysis using FBI crime data, EPA climate data, housing affordability data and more. Our sophisticated head-to-head comparisons draw on extensive data sources to identify ESG leaders who have the potential to deliver sustainable value relative to their competitor groups.

Two seemingly identical cities with the same credit quality may suddenly reveal stark differences with ESG big data analysis

Real assets/Private markets

Data-fueled insights may help drive farmland performance, address risk factors

When it comes to investing in real assets — farmland, timber, energy and infrastructure — sustainability is essential for assessing risk and preserving long-term value. Where does big data come in? As just one example, we engage technology and data analysis in our due diligence for land purchases. We combine data from satellite imagery to understand historical land-use patterns, while matching it to government global-positioning-system data used to substantiate land claims. This is particularly important in regions where we must adhere to regulatory frameworks that promote zero deforestation and sustainable agriculture.

California: Aerial image data drives greater water efficiency

In California's Central Valley, nearly all of our tree-nut operators have begun using aerial spectral imagery to optimize water and nitrogen use. High-resolution, multispectral images provide farmers with accurate, real-time information about the water and nutrient status of plants, and flag irrigation leaks and blockages for repair. Images captured throughout the growing season let farmers gauge their progress in addressing issues. When combined with soil-moisture monitoring programs already in place, this data-intense imaging technology helps to derive optimal value from every drop of water in this drought-challenged part of the United States. See how it works.

Real estate

Big data is the future of investment and asset management

Improving the sustainable performance of real estate may improve the attractiveness of the asset, helps keep service charges lower and reduces operational costs for occupiers. Energy efficiency is a critical factor, which is why we seek to reduce the energy intensity of our real estate equity portfolio by 30 percent by 2030. Big-data analysis techniques are assisting us with this effort by helping us measure energy efficiency across a broad range of properties. We also are able to see relative performance of assets when it comes to water usage and other factors.

The data disruption: Four real estate trends

· Smart buildings: The digital and physical worlds will continue to converge as the Internet of Things (smart, inexpensive sensors) and the rollout of 5G (the next mobile data standard) allow people to interact with and manage the built environment more effectively.

· Optimization and automation: As more data are created at each building, owners can optimize how systems support the health, comfort and productivity of tenants while also enhancing efficiency. This also opens the door to buildings that self-manage, modifying environ­mental factors without the need for human intervention. Buildings will be able to self-manage and to provide optimal conditions for specific occupants (e.g., automatically adjusting temperatures in spaces when sensors detect that the space is occupied).

· Virtual power plants: As the world moves toward greater electrification of heating and transportation, rising demand may strain the electrical grid and drive peak prices higher. In response, asset owners are likely to leverage on-site renewable energy and battery storage — in essence, virtual power plants — to manage their supply dynamically and potentially generate significant revenue by selling energy back to the grid.

· Smart cities: Cities, local authorities and land registries are fast adopting open data initiatives, which allow third parties to access digitized public data. Data sets such as transit data, air quality, demographic information and more, as well as property-specific information about ownership and leases, are increasingly available.

Read our in-depth analysis.

By applying big data to big investments with an ESG lens, we can see potential advantages for both performance and risk management.

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1 Ocean Tomo LLC, 2018

This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell, or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor's objectives and circumstances and in consultation with his or her advisors.

Investing involves risk; principal loss is possible. There is no guarantee an investment's objectives will be achieved.

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