New system uses algorithms to put online ads in front of most likely customers
At the exact moment a mom-and-pop investor considers buying bank stocks, an advertisement pops up on their desktop promoting a financials-focused fund.
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The scenario isn't science fiction, it is BlackRock Inc.'s latest business plan.
The world's largest money manager with $5.4 trillion under management is developing a new advertising system that uses sentiment analysis from messages on Twitter Inc. and other data to help determine when to advertise specific funds in its vast lineup of exchange-traded funds.
The effort, a partnership with advertising firm WPP PLC, is the latest example of fund firms experimenting with new ways to attract cash in an increasingly competitive market for low-cost index-tracking funds. It shifts the use of computer programs beyond investing to using algorithms to woo retail investors.
"The same value we get on the investing side from big data and algorithms and looking at trends and responding to them -- we'd like to do that on the advertising side," said Jennifer Grancio, head of global business development at BlackRock's iShares ETF business.
BlackRock competes with rivals including Vanguard Group, State Street Corp., Invesco Ltd. and Charles Schwab Corp. for investor cash in the $2.8 trillion U.S. ETF market.
The financial services industry spent $2.5 billion on automated online-ad buying and selling in 2016, according to estimates from market research firm eMarketer.
Algorithms have been a part of the digital ad-buying process for years, where ad space is traded on exchanges like stocks in financial markets. But BlackRock and WPP are now trying to apply quantitative strategies to determine when to ramp up those trades. These algorithms even adjust how much money the firm is spending on such ads.
ETFs have become the epicenter of growth in the asset-management industry, attracting hundreds of billions in new investor money in recent years. They have tax advantages over mutual funds and trade on exchanges like stocks. Money managers have raced to one up each other on new product launches and ultralow fees.
BlackRock, which has cut prices aggressively for some products, also is trying to respond faster to economic and political changes that shape investor decisions. To do so, the firm is relying on social media sentiment data and analysis of news stories to determine which ETF ads to display.
Ahead of the U.K.'s June 23 vote to leave the European Union, BlackRock advertised its iShares MSCI United Kingdom ETF, an unhedged ETF that invests in U.K. stocks. It quickly opted to switch the ads to a hedged version of the fund after U.K.'s surprising decision to leave the EU.
But the money manager wants to do more and at a faster pace while staying ahead of rivals. BlackRock is using analysis from firms such as iSentium LLC to start ramping up or scaling back targeted ads in sync with investor sentiment.
Funds also have another bridge to cross.
Hagan Major, co-founder of ad firm Yellowhammer Media group, said asset managers face a balancing act in pushing targeted ads about financial decisions without encroaching on the privacy of clients.
"There's a very fine line between really effective and really creative and something that feels invasive for a consumer," he said.
Write to Sarah Krouse at email@example.com
(END) Dow Jones Newswires
May 26, 2017 02:47 ET (06:47 GMT)