Kempen Outlook 2021 Whither the wind blows

In fundamental analysis, investment analysts assess the attractiveness of a firm or sector relative to other investment opportunities by researching that company’s or sector’s attributes. This kind of approach continues to form the cornerstone of many of Kempen’s strategies and our fiduciary management services for pension funds and insurers. However, we are increasingly using data analysis as a complement to our traditional fundamental research process.

“Our aim is to provide our portfolio managers with a list of securities that they can consider including in their portfolios,” data scientist David Dogon explains. “We want to be a generator of ideas, and we use machine learning to this end. We use computer algorithms to identify patterns in large datasets. For example, combining financial and historical datasets enables us to see correlations that we might otherwise not have noticed.” 

As an illustration he refers to a model that our Advanced Analytics team has built for investments in wind farms and solar energy plants. “You can be influenced by glossy brochures and annual reports when selecting companies. But you also need to dig deeper and include non-financial information in your analysis. This helps you to understand the differences between companies and make better choices.”

So, for example, the model combines financial information with data on the locations in which the companies operate. Key information in this regard includes historical meteorological data, such as average wind speed, the risk of severe storms and the average number of hours of sunshine per day and per season. These figures enable us to estimate how much electricity can be generated in a particular location much more accurately and, therefore, the potential return on the investment. 

The portfolio managers of the Kempen Global Listed Infrastructure Fund have used the model to support their selection process for some time. It’s still too early to offer proof in the form of improved returns that this approach is better than traditional fundamental analysis alone, but Dogon has no doubt that the results will be positive. “The model provides substantiated predictions for the performance and production of the plants. That simply has to translate into improved returns.”

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The views expressed in this document may be subject to change at any given time, without prior notice. Kempen Capital Management N.V. (KCM ) has no obligation to update the contents of this document. As asset manager KCM may have investments, generally for the benefit of third parties, in financial instruments mentioned in this document and it may at any time decide to execute buy or sell transactions in these financial instruments.

The information in this document is solely for your information. This article does not contain investment advice, no investment recommendation, no research, or an invitation to buy or sell any financial instruments, and should not be interpreted as such. This document is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such.

The views expressed herein are our current views as of the date appearing on this document. This document has been produced independently of the company and the views contained herein are entirely those of KCM.

KCM is licensed as a manager of various UCITS and AIFs and to provide investment services and is subject to supervision by the Netherlands Authority for the Financial Markets.