New Constructs Readies Subscriber Fees, MD&A Analysis

New Constructs, a provider of independent research and stock recommendations based on analysis of footnotes in financial statements, is preparing to move its stock, mutual find and exchange-traded fund screeners from being freely accessible on its website to being available only via premium subscriptions, and is expanding the coverage of its analysis tools to include other areas of financial reports, such as management discussion and analysis sections.

David Trainer, chief executive of Nashville, Tenn.-based New Constructs, says the vendor will migrate to a subscription model for its data—which he says provides a true forward-looking rating for ETFs and mutual funds that can be used to predict stock price movements—by the end of September. After that, the content will be fee-liable, with packages starting at around $500 per year for retail investors accessing the basic reports and ratings currently available online, and rising based on user type, the level of content, and how they want to receive it.

“We’ve put around 7,500 new reports out for free every day, and a further 3,000 stock ratings that are not free,” Trainer says, adding that content on the vendor’s web site has received more than 100,000 page views per month, and seen 5,000 reports downloaded.

Separately, the vendor is developing technology to automate the process of parsing data contained in the footnotes and management discussion and analysis section of financial results, where XBRL is not as user-friendly for extracting data as from the main financial tables.

“These are still dark pools of information in filings because people can’t access them in a useful way, or don’t have the expertise to understand them,” because tools for extracting data—or the analysts using them—don’t know the patterns to look for, Trainer says. “There are patterns in how companies try to get around accounting rules, by using certain strings of text in proximity to certain figures in specific parts of a filing. So when I started New Constructs, I wanted to create a tool that—paired with a sophisticated analyst—can… automate the search and collections of patterns from footnotes.”

For example, Trainer says he can create automated programs that look for unusual gains or losses relating to changes in actuarial assumptions about the value of a company’s pension fund, which can appear to show better figures overall, or for tell-tale warning signs like a company reporting income from its pension fund when the plan is underfunded. “We provide a better operating earnings figure because we remove all the unusual items…. It’s not sexy, it’s not fun, but it is extremely difficult—and that’s where the value lies, and what provides my clients with a huge competitive advantage,” he says.

New Constructs is also looking to make its research and recommendations available through third-party vendors, and is actively engaged in discussions with potential partners, Trainer says.