Investors are increasingly using artificial intelligence (AI) technology – which can judge that a management team sounds excited, nervous, tentative or any number of other emotional states – to conduct sentiment analysis on issuers’ earnings calls.
Now IR teams are beginning to explore the power of AI as a proactive tool, to give themselves and their management team a better sense of how certain words and phrases could be interpreted.
It’s not what you said, it’s the way that you said it
Sun Life Financial’s IR team began experimenting with AI last year, after hearing a representative from BlackRock describing how the investor was using its Aladdin tool to analyze sentiment on earnings calls. Aladdin is BlackRock’s electronic risk management solution; as of 2013, it has been responsible for managing 7 percent of the world’s wealth.
Justin Wang, assistant vice president of investor relations at Sun Life Financial, was inspired by the power of Aladdin and, along with the rest of his IR team, set about finding affordable tools he could test. ‘We think technology is really going to transform how you think about how IR works in the future,’ he tells IR Magazine. ‘We wanted to get an understanding of how investors are using technology and then use those tools to do our job.’
After consulting the Sun Life Financial IT department, Wang started experimenting with the IBM Watson tone analyzer – a tool that allows users to insert text and generate an assessment of words, sentences or paragraphs that imply an emotion. The results are easy to interpret. The platform highlights text in different colors that correspond to the tone it’s scanning for: angry, fearful, joyful, sad, analytical, confident and tentative.
‘We run our prepared remarks through the tone analyzer to see what the results are,’ Wang says. It’s important to then look closely at the results, he adds, because there are nuances that will be specific to each industry. For instance, a lot of Sun Life Financial’s earnings transcript is flagged as fearful, which could be problematic for a lot of companies but, for an insurance provider, is actually fine.
For this reason, Wang also runs the earnings transcripts of Sun Life’s peers through the tone analyzer, to build a better sense of the words and phrases that are industry-specific. ‘A lot of this technology is still nascent so what you put in is what you get out,’ he explains.
Sun Life Financial’s team is testing other tools as well, including Prattle. Once they’ve found a tool whose uses they fully understand, Wang expects the IR team may be able to brief management ahead of earnings calls to use or avoid certain words and phrases during the Q&A section of the call.
‘This is how our investors are looking at us, so we want to be aware of the tone we should be using,’ he says. ‘If there’s anything that stands out, we can give feedback to our executives.’
How investors and exchanges are innovating – and how IROs should adapt
At our free to attend think tank in Palo Alto on March 28, we’ll be hearing from one of the largest pension funds in the world, and the US’ newest stock exchange share inside stories and lessons learned on how they’ve innovated to adapt to rapidly changing markets.
We’ll be covering:
- What are the implications for IROs as funds reshape how they manage their portfolios?
- As passive and quant-based instruments continue to rise in popularity, understand how this is changing the investment landscape
- Share your thoughts on how issuers can reposition themselves as these changes happen
- Discuss how investment horizons are changing and what you can do to target long-term investors
Find out more and request your invite to the IR Magazine Think Tank – West Coast here.
