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April 1, 1999

Working With Managers

By Michael L. O'Reilly

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  • Working With Managers
  • Page 2

Robert DiBraccio understands the importance of a good relationship with a firm's portfolio managers.

In his first year as the head equity trader at Delaware Management Company in Philadelphia, DiBraccio has tried to increase his desk's communication with the firm's 19 equity portfolio managers.

"I'm trying to get the traders to talk to the managers, letting them know what's happening on the desk," he said. "The portfolio managers appreciate input from the desk, and they consider the desk more of an integral part of the management process that way."

Delaware Management, a large-cap value manager with $46 billion in assets under management, has $26 billion invested in equities, and invests only in domestic stocks. DiBraccio manages six institutional traders, and his desk mostly handles large block orders. He said roughly two-thirds of his desk's orders are for 100,000 shares or more, and half are for blocks of at least 250,000 shares.

Those large positions require DiBraccio's traders to work closely with managers.

"Liquidity is the overriding concern," he said. "We really need to know where a manager is coming from with an order. Traders have an expertise, and managers need to have confidence that we can get the job done handling these large blocks. That's why communication is so important."

DiBraccio first developed an open relationship with a portfolio manager during his six-year tenure at Wellington Management in Boston, trading for legendary stock picker John Neff.

At that time, Neff managed the Vanguard Windsor Fund for Wellington Management. He was widely known across Wall Street for his astute ability to pick under-valued stocks and later sell them at their peak.

"John did a lot of research himself," DiBraccio remembered. "He would talk to executives and companies, getting to know the businesses he was investing in. He had a disciplined style. He wouldn't buy high fliers. He bought things that were out of favor, and he had the fortitude to stick with those stocks. He had confidence they would turn."

The stocks usually did turn. During Neff's heyday with Wellington Management, the Vanguard Windsor Fund regularly had high returns. In 1983, the fund had a total return of 30.1 percent. In 1985, it had a 28 percent total return. With the market still recovering from the crash the year before, the fund had a 28.7 percent return in 1988.

"John taught me how to be patient when I needed to be, and aggressive when I needed to be. He understood how to get into and out of institutional positions," DiBraccio said. "He also taught me how to be part of a working team with a portfolio manager. We talked on the telephone maybe 20 times a day. The trading almost became instinctive. I knew his mindset. It's a trader's job to know."

As a portfolio manager's most direct link to the market, DiBraccio talks to sell-side brokers as often as possible to know what is going on in different stocks during the trading day. He rarely uses alternative trading systems, instead choosing to work orders over the telephone with brokers.