In this episode, we discuss market insights with two representatives from the trading desk: Rita Tien, who trades the Americas from Toronto, and Peter Dmytruk, who trades Asia from Singapore. Rita and Peter highlight the complexities of trading, emphasizing the importance of regional differences and the role of the trading desk in executing investment decisions. They discuss the impact of the Japanese carry trade, the shift to T+1 settlement cycles in the U.S. and Canada, and the influence of ETFs and retail investors on market volatility. They also touch on the role of multi-strategy hedge funds and the challenges of managing market risks. The conversation underscores the need for long-term investment strategies and the importance of understanding market structures and dynamics.

Key Takeaways:

• The trading desk plays a critical role in executing investment decisions effectively, navigating market nuances and regional differences.
• Market events like U.S. elections and Fed rate decisions significantly impact markets, requiring traders to discern meaningful signals from noise. While short-term volatility is challenging, the focus remains on executing trades aligned with long-term strategies.
• The Japanese carry trade impacts markets, influencing businesses and structured products. Sudden market moves, like Japan's interest rate hike, highlight the importance of communication to assess potential impacts on investment theses.
• In the U.S. and Canada, the shift to T+1 settlement reduces settlement risk and margin requirements by accelerating fund transfers but adds complexity for global trades due to mismatched settlement cycles.
• Market volatility is influenced by zero-day options, high-frequency trading, retail investor activity, and leveraged ETFs. Retail-driven markets such as India, Korea, and Taiwan showcase momentum-driven dynamics, while recent SEC rules aim to protect retail investors and improve liquidity access for institutional players.
• ETFs significantly influence market dynamics, concentrating liquidity and volume, especially during closing auctions, where up to 20% of daily trading occurs. This impacts trade timing, crowding in top-weighted stocks, and creates potential price distortions affecting subsequent trading days.
• Multi-strategy hedge funds, or "pod shops," drive market overcrowding by leveraging similar strategies, such as M&A arbitrage or index rebalancing. This amplifies market risks, creates volatility during downturns, and provides opportunities for disciplined long-term investors amid rapid shifts.
• Crowded, momentum-driven trades fueled by leverage and quantitative models can create challenges for disciplined investors, though opportunities arise in volatility. Balancing exposure to popular names with underappreciated companies can mitigate risks while benefiting from structural market inefficiencies.

Host Name and title: Rob Campbell, CFA Mawer Institutional Portfolio Manager Guest names and titles: Peter Dmytruk, CFA, P. Eng. Trader Rita Tien Equity Trader For more details and full transcript visit: https://mawer.com/the-art-of-boring/podcast

This episode is available for download anywhere you get your podcasts.

--

Founded in 1974, Mawer is a privately owned independent investment firm managing assets for institutional and individual investors. Mawer employs over 250 people in Canada, U.S., and Singapore. Visit Mawer at https://www.mawer.com.

Follow us on social: LinkedIn - / mawer-investment-management Instagram - / https://www.instagram.com/mawerinvestmentmanagement/