Technology helps advisers tap insight on global scale

Since true out-of-the-box innovation in adviser technology is relatively rare, my antennae are always up, looking for new, interesting angles to share with readers

Since true out-of-the-box innovation in adviser technology is relatively rare, my antennae are always up, looking for new, interesting angles to share with readers.

For that reason, I paid close attention when Raj Udeshi, co-founder of HiddenLevers.com, began bending my ear about his service a month ago at the Technology Tools for Today conference.

In basic terms, HiddenLevers helps investors understand the potential portfolio impact of macroeconomic change. It uses a proprietary formula to weight how 95 economic factors, called “levers,” affect particular industries, ETFs, mutual funds and individual stocks.

By selecting from a list of 25 hypothetical macroeconomic scenarios — among them a global conflict, an oil price spike and a decline in the price of gold to below $1,000 an ounce — advisers can assess how the events might affect a specific stock, ETF, mutual fund, or a client’s entire portfolio.

If advisers disagree with HiddenLevers’ weighting of a particular economic factor, they can use the site’s sliders to select their own weighting within a range. Alternatively, they can use the scenario filter to generate a list of stocks that would do best under a particular scenario.

The outcomes provide insights that advisers can employ to hedge client portfolios against risks not addressed by mainstream financial planning or portfolio management tools.

The firm’s founders believe that economic analysis should be the third component of investment research, alongside fundamental and technical analysis.

Jeffrey A. Miller, president of the investment advisory firm NewArc Investments Inc., is one of HiddenLevers’ 21 beta testers. (He and another adviser were referred by the site’s founders for this column.)

Mr. Miller’s firm uses a somewhat nontraditional approach to guide do-it-yourself clients into internally designed programs for trading stocks and exchange-traded funds, as well as help them build the right asset allocation mix to meet their needs, whether short- or long-term.

(Above) An example of how HiddenLever’s charting widget can be used to quickly show correlations, in this case a five-year view of how the Purchasing Managers Index correlates to the prices of Makita Corp. and Kubota Corp. stock. (hover your cursor over points on the chart to see additional detail)

“My main use for the site thus far is to pick stocks for further study,” said Mr. Miller, adding that he has been using the tool for several weeks but is still learning its intricacies.

“[HiddenLevers] gives you the idea. You have to have a good theory about what is going to happen [in the economy], but once you have that idea, the macro screener gives you a good shopping list of candidate stocks to investigate,” Mr. Miller said.

He also said that an adviser will take the list and examine a company’s balance sheets in far more detail and, if needed, re-run the filter with other factors in mind.

David Nightingale, the sole practitioner at Drum Hill Capital LLC, a registered investment advisory firm managing $75 million in assets, is another of the site’s early beta users.

“One of the great things about this tool is its macro stress-testing against a portfolio,” he said. “When you are looking top-down, something like this is useful.”

Mr. Nightingale was quick to point out that he, too, is still examining the tool.

“It has the potential to be very useful to me, especially the hypothetical scenario testing and its Black Swan-type modeling,” he said.

“One of the things I asked [the founders] to put in there was the ability to save a scenario. Also, their canned list of disasters is interesting, but I’d like to make up my own disasters,” Mr. Nightingale said.

Since the site remains a work in progress, the firm has reached out for additional beta testers.

Michael Phillips, chief executive and chief scientist at MacroRisk Analytics, a firm that has been developing expensive and complex macroeconomic assessment tools for a decade, is happy to see a new entrant.

“From a marketing standpoint, I view them as a really positive signal, and I’m glad that advisers are going to start hearing that macro matters,” he said. “The product has a neat interface, but I would like them to become a bit more transparent about what they are doing under the hood.”

Although HiddenLever offers a free 30-day trial of the far simpler investor version of the tool, financial advisers who sign up as beta testers of the full suite and are willing to provide feedback will receive access for $50 a month for the remainder of 2011. (Company officials said that the price will go up to $200 a month next year.)

Readers interested in signing up for the beta can use the following link when registering at HiddenLevers.

(Visit our blog, Investment News.com/technology for a much more detailed explanation, provided by the site’s creators, of its underlying methodology.)
E-mail Davis D. Janowski at [email protected].