Uncovering Alpha-Generating Insights with dv01 Granular Alternative Data & Embedded Analytics

Introduction

Traditional performance and credit analysis have long been the cornerstone of investment strategy. Investors emphasize tracking credit performance and identifying underwriting or collateral attributes that predict future performance and alpha generation. While traditional credit attributes are well-understood and often reflected in interest rates or loan pricing, the quest for additional alpha drives investors to utilize alternative data. This data must be granular, clean, and seamlessly integrate into their existing workflow because an investor’s analysis is only as good as the data.

At dv01, we believe that leveraging granular alternative data provides deeper, more nuanced insights into market conditions. This enables investors to identify opportunities and manage risks more effectively. Our unparalleled data library, user interface, tooling, and industry expertise allow us to offer unique market intelligence and insights that complement our products. Consequently, we provide market intelligence tools across various asset classes and metrics that are back-tested and proven to generate alpha and drive future performance.

Intelligence In All its Forms

Traditional efforts to provide market intelligence of any form in structured credit are usually beset by a number of problems, chief among them:

• Multiple Vendors, Higher Expenses: Investors may employ multiple vendors for alternative data, while others for analytics and insights, all of which significantly raise their costs.

• Interoperability Issues Between Systems: The more IT subscriptions an investor has, the greater data quality concerns and significant upfront integration costs associated with existing workflows. 

• Lack of Data Granularity: Most data vendors provide data at the state or MSA level, or security insights at the pool level rather than loan level.

• Informative vs. Actionable Insights: Results are often informational rather than actionable, lacking context and measurable impact 

How dv01 Differs 

• Holistic Solution: Our intelligence offering is fully integrated with and complementary to our existing data and technology products, and it runs through internal data quality services.

• Data Granularity: We provide geographic insights at the ZIP Code and county level, offering significant new insights. Furthermore, all analytics are derived at the loan level and aggregated to security, shelf, or portfolio levels.

• Seamless Integration: dv01 handles the entire data standardization process, freeing up analysts’ time. The data can be seamlessly integrated to investors’ data that has been onboarded to dv01 or exported to an investors’ internal workflow.

How dv01 Fills the Gap 

dv01’s intelligence suite is built with investors’ needs in mind, focusing on gleaning performance insights. Our analytical insights are built off our extensive data libraries and industry expertise. Our alternative data starts from collecting disparate information from reputable sources, such as FEMA, Redfin, and state tax records, and transforming it into analysis-ready data that is appended to individual loans. Some examples of our intelligence offerings are below: 

1. Alternative Data Insights: 

   1. Affordability Ratios

      1. Most vendors focus on basic affordability measures (without detailed analysis of taxes, insurance or income) and do so at state or MSA levels.

      2. dv01’s Affordability Ratios are at county and Zip Code level, using a unique approach to calculating income, with in-depth focus on tax and insurance payments at local level. 

      3. Our Affordability Ratios are back-tested and provide significant insight into performance, and have a meaningful impact on prepayment behavior and long-term home price trends—even on a credit and rate-controlled basis.

   2. ZIP Code Rankings: 

      1. dv01 scores ZIP Codes based on expected credit performance, ranging from 1 (worst) to 7 (best).

      2. These rankings are determined by combining non-housing data (e.g., 30+ Impairment Plus Last 12-Month Liquidations) and housing data (e.g., median sales price YoY change).

      3. The results are tested through multiple-regressions to significantly differentiate future expected credit performance. 

   3. ESG Variables:

      1. Alternative loan-level data metrics that illustrate a security or portfolio’s exposure to industry standard (ICMA, SASB, and GIIN) ESG metrics while also having significant performance lifts.

      2. Empirical evidence shows significant performance lift on attributes like renewable energy mix in relation to mortgage performance, even when controlled for FICO, DTI, and LTV.

2. Analytics Insights

   1. Non-QM Prepayment Model

      1. The only publicly available prepayment model built specifically for the Non-QM universe. 

      2. A GLN model augmented by machine learning and derived at loan-level to produce accurate, and explainable results regarding future prepayment projections. 

      3. Median prediction error of 12%, AUC of 0.716, with results improving over time (including prediction within 0.3 CPR of actual benchmark prepayment rates in 10 of the past 11 months).

   2. Performance Attribution Reports

      1. Our proprietary approach that analyzes recent trends across metrics at security or shelf level relative to the Fitch-dv01 Non-QM and Prime Jumbo Benchmarks.

      2. Uses a machine-learning Brinson-Fachler approach to segment performance differences into granular cohorts, enabling investors to understand the interplay of collateral characteristics, security composition and attribute performance in assessing overall security or portfolio risks.

Conclusion

Investors seeking external analytics or alternative data for alpha generation often face challenges with cost, synergy, and compatibility. dv01 uniquely integrates both forms of intelligence into our standard offerings. By incorporating these elements into security analysis, investors can uncover valuable insights and enhance their risk assessment and forecasting capabilities.

Explore dv01’s platform today to see how our integration of granular alternative data can help you generate alpha and achieve your investment goals.