The stockpicker’s approach to trading the week ahead

Published on 10 June 2024

Comgest is a classic stockpicker asset manager. Joe Collery, head of trading at the firm, tells us how his firm track information to ensure it can get best execution for the tight universe of equities that it tracks.

Collery notes that both volume and volatility are up, but bid-ask spreads are tighter. Understanding this historical data form the previous week is only one part of the trading picture. real-time broker performance is a key metric for Comgest in optimising its trading activity.

We also get Joe’s insight into the firm’s approach to handing execution across the three regions of US, European/EMEA and APAC and his take on concerns about declining liquidity in the European equities.

Interview Transcript:

Dan Barnes: Welcome to Trader TV This Week, your insight into the way trading desks can prepare for the week ahead. I’m Dan Barnes. Joining me this week is Joe Collery, head of trading at Comgest. Joe, welcome to the show.

Joe Collery: Thanks for inviting me Dan. It’s lovely to be here.

Dan Barnes: To start us off, tell us, what sort of measures do you used to assess the week ahead, and how does that reflect the way Comgest invests and trades?

Joe Collery: Comgest is an independent international asset manager, and we look at long term quality, growth and responsible investment strategies in order to assess particular companies. We look at key factors on the volume side of things. So we’ll tend to look at market volume, bid ask spreads, display sizes, intraday volatility, and block percentages that have taken place in the markets. This really helps us to assess exactly how the market is moved and how we can adjust our strategy going forward. If we take a look at Europe, we can see that the market volume has increased roughly 27%. We’ve seen bid ask spreads come in about 2%. Display sizes have increased by about 6%, with industry volatility going up about 19%. So using these figures, it really helps us make a decision on our quality growth companies and what the best strategy would be if we could have.

Dan Barnes: You are trading across Asia Pacific, Europe/ EMEA and the US. How do you manage that process?

Joe Collery: Being a centralised dealing desk trading out of Europe, we tend to start quite early in the morning, come in mid-Asian session, and we’ve often noticed that a lot of other European desks that begin at that time, the volume starts to pick up and some of our main companies that we invest in. So this can be an interesting liquidity event in itself, as another geographical region joins the trading activity. And using the data that we have defined from Asia, it can help give us an indication of how the European market is going to look for that day. But from a movement and volume point of view, a lot of our European activity would be primarily low touch, as we are all hands-on and ready to go. Depending on the market you’re trading in, though, we do tend to trade in some frontier markets like Kenya and Nigeria. Perhaps you would tend to go down the high touch route, as you see that these local brokers can help a lot more. And then the US opens which we will see as quite a significant liquidity event, also for many European names as US investors begin to enter the market. This again we would primarily trade on low touch basis except for certain regions Latin America, Chile, Colombia, these sort of names where we find further added value from the high-touch, localised broker.

Dan Barnes: What sort of dealer support do you need from the sell side?

Joe Collery: We tend to focus on the company that we’re looking to invest in. We will take all of the historical data available on that company who has traded in the name, who are the holders of this name, and what kind of price range the company is traded in. This will help us make informed decisions going forward on what would be the best broker or investment solution for this investment.

Dan Barnes: So how do you effectively manage dealer performance in terms of using data and analytics?

Joe Collery: Well, the key here is to have a deep repository of all of the data relevant to the markets in the countries and the companies you’re trading in. So we tend to look at each country and exactly how the data is posted. How that volume information is given is a at the end of the day, after the day a couple of areas learn that and then fill a database with this. You can then use all of this information in your EMS. With all of the IT and all the developments we’ve seen since Covid, the vendors have upped their games. From this point of view, you can now see real-time TCA as you trade all the volume that’s going on. It can be displayed across your line of trade, whether it’s TCA, whether it’s broker information, it’s all there. And so that enrich with the data that you have stored from your previous day really gives you a much, much better version of a real time performance and how you can make the right choice going forward.

Dan Barnes: We have heard concerns about liquidity quality in European markets declining specifically in equities. What’s your take?

Joe Collery: I think it’s a bit disingenuous to say it’s declining because you’re comparing the European market with the US. And when you take the view that the US has far more mega-cap companies trading there, it’s obvious to say, well, the US is far larger. There is also since MiFID II and the market fragmentation, a real perhaps misunderstanding of how much volume actually does take place because it has been fragmented across broker size, across the apps, across all this stuff. It’s sometimes can be a little bit more difficult to actually see the true picture of the level of volume going through.

Dan Barnes: I’d like to thank Joe for his insights today and of course for you for watching. This has been trader TV this week.

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(stockpicker, trading, trading approach, strategy)