70% cut in duration of recommendations driven by volatile market conditions
By TEH HOOI LING
 | Email this article |
 | Print article |
 | Feedback |
REFLECTING the volatile market conditions, brokers are putting out recommendations which are valid for only 20 days, according to Trade Ideas Monitor (TIM), a Web-based aggregator of trade ideas, which now counts 419 broking firms and asset managers globally as its clients.
 |
| Mr Berthoud: Brokers' recommendations in August were the most bearish since TIM's launch in Oct 2005 |
Compared with 2007, the shorter duration represented a 70 per cent compression of the time for which recommendations remained valid. Meanwhile, for the month of August, the ideas to short stocks made up 45 per cent of all ideas submitted.
'Institutional brokers, in their recommendations to clients during August 2008, were collectively the most bearish they have ever been since the TIM was launched in October 2005,' said Colin Berthoud, director of youDevise - the developer and operator of TIM.
'As the market has come down, this bearishness subsided somewhat. Since late October, however, the percentage has risen significantly again. And to date in November, it is at 48 per cent, a trend that does not bode well for the market, as we've seen.'
TIM is a Web-based application where institutional brokers can send ideas to all their clients simultaneously. Meanwhile, the buy side people, be they hedge funds, long-only funds or proprietary traders, can - via the Web page - view and track on a single screen the performance of all the ideas they receive from their various brokers.
The application allows fund managers to more accurately compensate brokers who give them the most profitable trade ideas.
'Trade ideas put research into action,' said Mr Berthoud, who is also a co-founder of youDevise. 'In many ways they are the most important and certainly most measurable aspect of what a broker delivers within commission.'
Trade ideas are specific to a client. Recommendations like how much and when to invest and when to take profit are made, after taking into consideration factors like the fund's size, its investment style, etc.
Hence trade ideas are different from research in that they are actionable and measurable to an individual client, versus research, which is 'passive and measurable in the abstract', said youDevise in its materials.
Prior to such applications, brokers generally call their clients with their ideas. The ideas may be scribbled down on a piece of paper, and subsequently forgotten. There is no way of tracking the profitability of these ideas.
youDevise makes money by charging brokerages a fee to use its application. Those on the buy-side, however, can get the service for free. Mr Berthoud said youDevise, which started in London, now has an office in New York and one in Hong Kong which was set up only six months ago.
He added that there are 670 individuals in Asia from 70 buy-side firms who can access TIM now. Globally, 6,000 people - half in Europe and the remaining in the US and Asia - are using its application.
Mr Berthoud said TIM is gaining traction in the market place. New long and short ideas hit a record 40,649 in October 2008, up 455 per cent from a year ago. The 40,000 level is twice as high as the average of 20,000 per month recorded for the first eight months of this year.
'We anticipate 50 per cent growth (in terms of clients) again next year, despite market conditions: trade ideas is a growth market even in the downturn,' said Mr Berthoud.
In addition to equities, youDevise has ambition to be the platform for trade ideas in commodities, foreign exchange and options trading as well. It may expand into these areas with strategic partners.
youDevise was established with an initial seed capital of £pounds;1 million (S$2.3 million). The company has 40 staff who collectively own 85 per cent stake in it. The remainder is held by a customer that invested in the company early in 2007.
This year, youDevise expects its turnover will be about £pounds; 4 million.
According to Mr Berthoud, youDevise has been cash flow positive in each quarter this year.
No comments:
Post a Comment