2019: The Year of Opportunity for the Buy-Side Trader

After the global equity market rout of Q4, the New Year rally has settled some nerves. However, the S&P remains below its September highs and many macroeconomic uncertainties remain. In EMEA, Brexit, economic slowdown, and political unrest are stifling momentum. Globally, with China trade wars and Trump’s presidency increasingly confronted by a resurgent Democrat-led congress, the picture is not much clearer. In our industry, many of our Members are still reeling from a challenging fund performance in 2018, increasing competition, and more regulation. But amongst this uncertainty, traders are telling us that 2019 is also emerging as a year of opportunity with new technology giving desks the chance to reshape their contribution to the investment process. We thought it would be useful to dig into some of the reasons for this optimism.

If you stop for a moment to focus on the changing dynamics within fund management, the opportunity for the trading desk has never been greater. In a bull market, when funds are growing and making money, there’s less focus on change within an organisation. In the current environment, firms are under pressure to extract as much performance as possible and traders who can add performance are being listened to. In Fixed Income, it has long been realised that trading—specifically questions of pricing and liquidity discovery are significant, if not the most significant drivers of fund performance. That’s, in part, why fixed income portfolio managers have so often continued to stay close to the trading process.

In Equities though, workflow and regulation have often created a functional split between investment decision and implementation that in the worst cases leads to a completely bifurcated portfolio management and trading process - decision and implementation are part of the same process. In the traders ‘Must Read’ book Reminiscences of a Stock Operator, published in 1923, Edwin Lefèvre nails this point when he says, “It is the way I get the four thousand shares that tells me whether I’m right in buying that particular stock at that particular time…”. The best equity trading desks are using technology to help strengthen that connectivity, by actively channelling market insight into managers and driving dialogue. Stock selection thereby becomes a symbiotic process between the ‘investment’ and the ‘investability’ decision. In these volatile and frequently illiquid markets, this insight from the market is more important than ever.

Once the investment decision is made, in 2019, the trader has use of new and innovative technology not previously available to help them understand the market and make smarter better trading decisions; analysis on market dynamics like insider trading, short interest, non-normal price, and volume activity is now available immediately and clearly. Finally, more than ever, thanks to unbundling and more stringent regulation on best execution, once the order arrives on the desk, the trader has an unprecedented level of operational independence to decide on trading strategy solely based on the needs of the order.

So refreshingly, as we dig into 2019, despite the broader market uncertainty, the message we’re frequently getting from Members is profoundly positive.

Chris Jackson, Head of EMEA Equities