In May, markets took a real nosedive with the trade war accelerating. The negotiations between the USA and China have been difficult. Especially Trump’s way to “negotiate” has recently led to a situation which has been humiliating for the Chinese. Possibly the worst thing to experience in this culture is to lose face. This Trump seems to not understand. The negotiations have drifted into a stalemate, which was reflected in stocks all over the world during the month.
The HCP Quant fund decreased in May by 11.59%. During the month, the fund’s US weighting fell to zero. Asia’s weighting is over half, concentrated in Chinese stocks. With uncertainty running high, valuations are low and therefore it is quite natural that many Chinese companies have found their way into HCP Quant. This is one of the reasons why value investing has worked in the long run. When the situation looks bad, a value investor finds more to buy but for the very same reason buying is psychologically difficult. Because the situation looks bad. For the same reason, value investing does not fit everybody. A traditional value investor finds value where many others do not. A value investor goes against the tide: he is a contrarian. Psychologically this is difficult because people are herd animals by nature. It is easier and more acceptable socially to act like the majority of other people. Being wrong in a group is not as difficult as being wrong by yourself with a differing view. In the end, a value investor has to trust that he will be compensated when the situation changes. When the very bad changes into a notch better, i.e. just bad. Then the pessimistically done pricing proves to be overly pessimistic and the undervaluation is unraveled in the form of stock-price appreciation. Sometimes the change of balance occurs quicker and more strongly, sometimes slower and more weakly.
The fund’s benchmark index MSCI ACWI SMID Value Total Return dropped by 6.13% in euros in May. It’s worth keeping in mind that the index has a substantial USA weighting, so it largely follows American markets’ movements. The S&P 500 Total Return index in turn fell by 5.89% in euros and the S&P Europe 350 Total Return by 4.66%. China’s Shenzhen Stock Exchange Small & Medium Enterprises index came down in euros by 11.22% which shows well how challenging the month was to Chinese small and mid-cap stocks.
Every now and then I’m asked what a portfolio manager’s job is like. The work seems to have some secrecy and mystery associated with it. Somehow, this makes me think of the times when I was getting started in investing. My idea of an investor back then was the stereotypical rich, elderly, and overweight man in a pinstripe suit and smoking a cigar. This idea faded away with time as I learned what a typical investor really is like. An ordinary investor is difficult to recognize in the street. He is like any of us. Similar idea are associated with portfolio managers and portfolio management as a job. I believe portfolio management as work is more ordinary than many think. Very far from Wall Street movies’ glamour and excitement, especially in a country the size of Finland.
Of course there all kinds of portfolio managers and employers. The job description and the tasks can vary significantly. It is impossible to answer the question of what one’s typical workday is like, because every day is different. To me, that is the spice of this industry. No single day is the copy of another. If there is something in common between different workdays, it is that one can pace one’s activities and tasks quite freely. On one day, the calendar is full of client meetings, on an other day time is taken up by a report on financial transaction tax sent to France (ahem, like yesterday) and on a third day time is used to log the fund’s transactions into the background system. Especially in a company the size of HCP, the diversity of required tasks stands out. Based on these, I got the idea to log my main activities over a day. This is an overview of my day. It is unlike prior days, and it will not repeat itself. Another portfolio manager’s day would look different. For those interested, however, it gives a good taste of what kind of tasks I performed over one working day.
Open the computer, a cup of coffee, and a breakfast sandwich. Researching and reading about what has gone on in Asia and Australia over the night. There are incoming messages HCP’s WhatsApp group about an event being organized in a few weeks’ time. All those invited have not received the message, and a colleague asks for help in finding the right phone numbers, etc.
The previous day, I’ve been reading the personnel fund law to explore establishing one for the company’s personnel. The CEO sends me a message and asks clarifying questions about my previous day’s message. I immerse myself in the law and find him the answer.
I log the previous day’s trades into the Bloomberg terminal’s portfolio tool, with the help of which I stay up to date on the fund’s companies’ news reports, the fund’s cash situation, etc. Additionally I log the same trades in a separate table in the cloud, with which it is possible to keep track of investment limits, foreign-exchange-adjusted position returns, and others that the Bloomberg terminal cannot easily do.
I get a message to replace Timo with Panu for HCP’s virtual meetings. With Timo going on study leave, Panu will handle his responsibilities relating to sports clients. I announce I’ll check the matter.
One previous day’s trade has not gone through fully, and the holding period in a Canadian stock has filled up, so I open the Windows virtual machine on my Mac notebook and through it input via the Infront terminal order SEB (why, oh why does Infront’s DMA connection not work on a Mac?) I shut down Windows but it starts to update itself before shutting down. The computer freezes up and remains unusable for almost an hour.
While waiting for updates to finish, I begin configuring the virtual-meeting system on my desktop computer. Another colleague wants to change the time of availability being offered, so I work on that too. A third colleague calls and tells me that some blog posts do not display pictures. Before that, the CEO has noticed this and has already been in contact.
When checking the changes made on HCP’s website, I notice a text in which Timo should be changed for Panu and a personal link, which should also be changed from Timo to Panu. The thing is, Panu does not have a profile page to link to. I message my colleagues and inform the webmaster to get the matter fixed.
A colleague comes back to me relating to the pictures in the blog posts. He has noticed the pictures having been linked to MailChimp’s gallery. I use MailChimp for sending out Quant’s investor letters. I ask to upload the pictures to HCP’s server and linking to those.
I’ve returned from Paris on Monday late at night because of delayed flights. The fridge is empty after a few days’ absence, and my spouse has to leave for another part of Estonia at 2 p.m., so I visit the grocery store, to be able to cook for myself later.
I continue with the virtual-meeting tool. Panu wants to change his own available times. I notice that not all colleagues’ calendars have included official Finnish holidays in them. I remove an unnecessary user to free up the license to Panu, I do adjustments to date settings, etc.
I check Quant’s cash situation. I estimate how many Canadian dollars are coming in in two days based on the size of the order and the company’s stocks average trading. I come to the conclusion that there is enough currency in addition to other currency coming in the following day so that at T + 2 there is enough cash in different currencies to take a new position in the fund.
I open the Quant model in the Bloomberg terminal. I start cross-checking data with another party’s database. I check companies’ recent liquidity, I check that there have been no news reports about buyouts (the upward movement is limited) and other checks. A British company listed on Oslo’s stock exchange meets the criteria. Because of the liquidity, forming a position will take 2-3 trading days, so I launch the Windows virtual machine on my laptop and input the order through Infront to SEB.
I get the idea about logging my day’s activities and start writing up things while I still remember at least part of them. The desktop computer’s trackpad’s batteries are dead and I put them to charge. I continue working on my laptop. I check my work emails and answer those.
I check out North America’s opening at 16:30 and check that all inputted orders have gone through. Everything is in order and the US has for a change opened strongly. I will only find out the final situation about the order after the exchanges have closed down, because I execute them with a VWAP algorithm.
Because exchanges seem to be in a “normal state” and the weather outside is warm and sunny I decide to go for a 4-km walk to clear my thoughts. I know there is more work to be done in the evening, so it is good to take a break and have some free time before the “evening shift.”
Cooking, chores (doing the dishes, etc.) and free time.
Reading HCP’s intranet to stay up to date on what is going on in the company and what my colleagues are working on. Oslo’s exchange has closed, so I log the executed trade quantity and the VWAP into the cloud. For the realized costs, I have to wait for a confirmation calculation, which have been delivered inconsistently recently. I have to ask for these multiple times, which takes up working time for no good reason.
I check the announced and projected quarterly filing dates of all the companies in the Quant portfolio on Bloomberg and log those in for myself in the cloud. At the time of an earnings announcement, a stock can react strongly and a stop-loss can get triggered or a company’s fundamentals can change significantly. This is why I keep an even more watchful eye on the companies at those times.
I browse through the day’s financial news on the Web and quickly check my own Twitter feed.
I read Bloomberg Businessweek magazine.
Spending some free time. A movie on Netflix (See You Yesterday).
American and Canadian markets close. I again log the trades from Infront for myself into the cloud and update the Bloomberg terminal’s portfolio manually up to date. I send a message about the trades executed during the day to the back office so they are aware of these and later input them into the background system, with which we for example calculate the fund’s NAV.
I calculate T+2 currency flows based on the day’s trades and conclude that based on those I can do another purchase. Because I had cross-checked the data already earlier for several companies during the day, I pick the next company from the list. An Asian company is in question. I convert the stock price into euros in order to calculate the correct size for a position. I also calculate a maximum price for the purchase to be certain. I send the order by email to SEB’s Asia trading desk, because I have no direct access to this particular market. I quickly get the answer from them that the order has been received.
The desktop computer has been offering a system update since yesterday, which requires a restart. Because the day’s work is coming to a close, I accept the update and leave the computer to be updated overnight.
On my laptop, I still check an additional email inbox, which receives all order confirmation and which are used as proof in the fund’s value calculations and verification of the holdings. I notice that not all the day’s trades have received confirmations, so I know that the following day will begin with asking for those.
It occurs to me to check the virtual meeting system’s emails’ content for Panu to check if they are correct. They are not. Simultaneously I notice he needs a license for the software with which to share a screen, so I send a message to the person responsible for that. I check some other settings in the virtual booking system for all colleagues and make small improvements here and there. I decide to continue making the changes the following days, because it starts to get late.
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Wishing you a warm summer,
HCP Quant portfolio manager
“If you are not willing to risk the usual, you will have to settle for the ordinary.”