Tagged: Passive Investors

March 17: The machination of machines!

Couldn’t blame you if you missed it.

 

For many, these past few weeks and the ones coming up are the busiest on the IR calendar. Board presentations, ASMs, virtual analyst conferences and investor days. You just finish year-end events and Q1 reporting is rushing at you.

 

Maybe you missed last week’s Market Structure Map. Tim Quast did an excellent job sharing our most-up-to-date view on how the Market works. If you missed it you can find it at: modernir.com/msm – it’s worth revisiting and sharing with your entire IR team, including the senior-most members of your investor and media facing IR team.

 

If you are a regular reader, you may have already considered putting constraints on no-longer preeminent sell-siders (data show their primary audience – yes, including still important long-term institutional holders – Active Investment in our parlance – consistently reflects less than 9.5 percent of all trading Market wide.

 

…with all respect and due appreciation to Python (Monty) Pictures.

No today, even after the recent storied, but largely isolated uptick in retail day trader influence – its machines, acting far faster with mathematical indifference driving the pricing for nearly, if not all equities. These Fast Traders – collocated to exchange computers running increasingly tactical algorithms (53 percent of all trading in the S&P500® last week) are no longer simple amplifiers of nuanced investor behavior, they search the web for data and reference points, trading both agnostically to whether it moves your equity price up or down and increasingly with intent to seemingly do just that.

 

Similar algorithmic behaviors now amplify the trading of the contextually correct, but perhaps inferentially misleading Passive Investment segment (last week: 20 percent of all Market trading). Regular readers know our growing focus on ETF-related trading that has now come to dominate this category.

 

Certainly many traditional index funds and indexed asset allocators continue to hold major positions in our companies, but any material trading is typically around known re-balancing events – like the twice annual S&P Global™ indices re-weighting, next, after this Friday’s close.

 

ETF plan sponsors on the other hand have grown increasingly “active” in their trading behaviors. Strategic sector weighting shifts, tax-related selling, and the use of machine-driven trading seemingly more common. Their influence frequently lifts Passive Investment to the Key Behavior in client’s Market Structure reports.

 

The Market has traded with some volatility recently in anticipation of monthly option expirations – not at all unusual; our calendar of such events should be a key input in your Investor Relations planning efforts and is available here – call us to learn how to avoid calendar missteps.

 

Today begins the cycle of monthly option expirations. First the widely followed CBOE Volatility Index (VIX) index. Thursday, AM-settled options expire, mostly index products. Friday brings the main events. March single stock options, single stock futures, stock index options and stock index futures all expire Friday – a so called, “quadruple witching” day. This happens just once a quarter.

 

A wide gamut of Market participants including – model-driven ETF sponsors, Hedge Funds, derivative traders, etc., with expiring options or futures positions must decide how to redeploy funds this week.

 

Little to do with fundamental business performance or valuations, the increased volume and volatility of these routine Market events queue exaggerated machine trading and can meaningfully impact the trading and response to your Investor Relations outreach and messaging. Good news often gets lost. The impact of less good news – often amplified. Its important to know what’s making the difference. Ask us how.

 

PD Grueber

IS REPORTING NOW JUST A SIDESHOW?

“Looking good, Valentine!” “Feeling good, Louis!” A gentleman’s bet. But maybe not so fast.

Farce met Street last week with good reason distracting many in the Finance and public company arenas. Far better chronicled elsewhere (here a good one on Benzinga’s Monday Pre-Market Prep – pls skip the clunky ad), but this weekend I couldn’t resist the parallels to 1983’s Trading Places – I’ll leave you to Twitter, your browser or favorite streaming service and bring the focus to Market Structure.

With all rights to Messrs. Russo, Landis, Harris, Weingrod, Aykroyd, Murphy, Ms. Curtis and Paramount, et al.

We start February with a significant percentage of our clients yet to report quarterly and year-end results and to confirm their forward-looking expectations. Tough challenge in a Market seemingly growing more disinterested.

No question your IR team is working long hours with counselors and non-public facing finance, accounting and marketing coworkers to develop a cogent, clear message, to tie-out results and craft outlook statements and public disclosures; all too often, a thankless job.

It doesn’t help that the Market and the trading in individual equities are seemingly chaotic and unpredictable. But are they? As a subscriber you’re likely conversant in Market Structure – our view of the Market here at ModernIR (if no, read on and please reach out to our Zach Yeager to set up a demo). So like the polar bear swimmers here in Minnesota let’s dive in – we’ll be quick.

Here’s how the Market has evolved in the first month of 2021 – changes in the demographics of trading:

Note the Passive Investment retreat – would have been fair to expect the opposite with all the month-end true-ups for ETFs, Index and Quant Funds – but it’s a repeating month-end behavior recently followed by buying. The surge of volatility arose from increased Fast Trading – machine-driven High Frequency trading, and yes, some Retail day trading.

Both categories are largely populated by algorithmically driven trading platforms; “Passive” (a largely  anachronistic designation – and far from it or the buy and hold strategies the name conjures) today constantly recalibrate collateral holdings with dominate behaviors suggesting little long-term primary focus. “Fast Trading” – pure execution speed, volume-based trading; its goal beyond vast incremental profits – no overnight balance sheet exposure.

Short Volume trading rather than building, declined and Sentiment remained persistently positive (5.0 = Neutral) and never negative. Does this sound disorganized? For forces dominating early Q1/21 equity trading this was a strong, dynamic and likely very profitable period.

The cruel truth – machine trading is no gentlemen’s bet. Brilliant in execution, these efforts have one goal – to game inherent trading advantages over slower moving Market participants – folks that demand conference calls, executive time, build and tie-out spreadsheet models and trade in non-Market-disruptive fashion – the traditional IR audience. The system rewards this – topic for another time.

From a pure trading standpoint, traders behind 9 out 10 trades in the final day of January trading placed minimal value on traditional IR efforts as their bots rocket through Short Seller reports and quarterly management call transcripts, scan real-time news feeds and playbacks for tradable intonation in your executives’ delivery and make mathematical judgments about the first 100 words of each press release.

As IR professionals its incumbent that we, rather than be demoralized by the evolution and dominance of short-term trading, engage, and become intimately versed in these data and these Market realities. The competitive advantage is in understanding and minimizing false conclusions in decision-making. Management and the constituents of long-term investors – yes, they are still legion – and expect no less.

Let us show you how.

Perry Grueber filling in for Tim Quast