Modeling Ray Dalio’s Modeling: The Art of Position Concentration
If you're not failing, then you're not pushing your limits, and if you're not pushing your limits then you're not maximizing you're potential." - Ray Dalio When we first exposed our initial thoughts on this legendary hedge fund manager in Bridgewater Associates: Modeling Ray Dalio's Modeling, the key finding was that their investment strategy was impersonating that of a macro manager (which historically relied largely on futures) by using ETFs to shoulder the primary market factors. In the [...]
Volatility, Accidental Alpha and the Ghost of GETCO…
"If we knew what it was we were doing, it wouldn't be called research, would it?" - Albert Einstein For this one we need to go all the way back to the first time we illustrated the fact that KCG's market making operation - the artist fka GETCO (or, Octeg for the uber-insiders) - was more sensitive to volatility than Virtu's market making operation, as illustrated below: Now, I know we've spent an inordinate amount of time on [...]
More Flow Traders NV: Dominating European ETP Market
"There are two kinds of people in the world: 1) Those who can extrapolate from incomplete data Oftentimes, when we are expanding an existing model - or, focusing in on a new modeling thread - it makes more sense to keep going until we have absorbed all the relevant data, even after we have already teased some of the findings on the Feed, than to stop and restart down the road. Better to stay in a patch of [...]
Flow Traders: Bigger, Better Than Ever, With a Twist…
"The true sign of intelligence is not knowledge, but imagination." - Albert Einstein Ugh! So many great stories to tell, and so little time to tell them... This one will need to be largely a storyboard for now, and then hopefully we can circle back and expand the narrative a bit (or, ideally, turn this into a full blown, deep-dive case study at some point). Anyway, given the similarities we demonstrated between Flow Traders NV (FTNV) and Virtu [...]
Talent Scouts: Look Who’s Reading Alphacution
"I'm watching intelligence." - Jeff Daniels (May 20, 2019) Alphacution is in the process of "making a market" for intelligence about some corners of the financial ecosystem where there has historically been very very little. Most of what can be learned about the companies we focus on - market makers, prop trading firms, and quant hedge funds - is anecdotal. Hearsay. Rumor. And, of course, the occasional sensationalistic newspaper riff about gargantuan pay days and trophy purchases of [...]
Fidelity, Wellington, and Vanguard: Mega-Manager Comparative Analysis
"The greatest risk is to risk nothing at all." - Leo Buscaglia If you think we are only interested in the machinations of those mythological creatures that lurk in the mysterious and complex depths of market microstructure, then you may be missing the plot here. While we do tend to wallow in the weeds from time to time in an unprecedented way, you may have noticed the steady drumbeat of the DaVinci quote that "everything connects to everything [...]
Fidelity’s Concentration Risk
Picking up where we left off with Fidelity's unprecedented shift in total (13F) position count in late 2018, we turn to another anomaly disclosed by our modeling: In the exhibit below, Alphacution presents its position concentration analysis for the entire 25-year 13F record for Fidelity. Here, we are not only looking at the value of the Top 10 positions as a percentage of all 13F positions, but also the fully-loaded Top 10 positions, which means across all reporting [...]
Virtu Financial: When Life Imitates Art
"Life's just this game of inches. And, the inches we need are everywhere around us." - Al Pacino If it's any consolation, the original version of this started with a shout-out to Doug with a tribute to Duncan Keith, former defenseman for the 2010 Stanley Cup champion Chicago Blackhawks, who lost 7 puck-stopping chicklets in their series-clinching win of that year's Western Conference run for Lord Stanley's cup. Hockey stud that he was, Duncan returned to finish the [...]
After 25 Years, Fidelity Shakes Things Up
“Learn how to see. Realize that everything connects to everything else.” ― Leonardo da Vinci While it is true that we spend alot of time and energy of late exploring certain deep-in-the-weeds aspects of the trading world, if you think that we are only interested in providing intelligence about that neck of the woods then you may have lost the plot here. What is going on deep in those weeds has impacts on what appears to be the wide [...]
Tower Research Capital: Keeping It Real…Tiny
“I can do this all day.” —Steve Rogers In honor of the big Avengers Endgame opening last week, I thought to pay a little tribute to Ant Man and the Wasp for this one... Like many of the trading firms we have been focusing on recently, Tower Research Capital (TRC) has a market making unit - Latour Trading - and a proprietary trading unit - Tower Research Capital Investments (TRCI), both of which are based on high-performance technologies, [...]
