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April 1, 2004

Sectors, Silence and Research

By Staff Reports

For John Russell, a trading executive with Franklin Advisers in San Mateo, California, silence is golden. At least this is true at the outset of the day. That's when Russell wants to be in "the library" with his traders, a team which appreciates a little early morning solitude.

Russell, whose desk also runs high yield bonds and convertibles, arrives with the other pros shortly before 5:30 a.m. "The day starts with what I call library time," according to Russell, who came to Franklin right out of college in 1993, beginning as a management trainee. He also worked for the firm as he was pursuing his MBA. Today, he is the vice president and director of the trading desk.

Library time is a time when the sun usually hasn't even risen. It is also a quiet time when traders are researching the market. "I discourage the street from calling the desk during this time," Russell says. "The traders are writing a daily research report that is distributed to the portfolio department which includes events in their sectors and information on working orders."

This quiet time is precious, Russell believes, because it is critically important to "know your customer." Yet research, in this hurry up world of high blood pressure, raised voices and blabby boxes turned to the highest volume, may not get done when the sun rises. That's because, once the market starts operations, there will be "a continual interaction between the traders and research analysts throughout the day," Russell says. No more time to study in the library.

Russell wants as much time to prepare as possible because his desk has a large responsibility. It runs some $50 billion of Franklin Templeton's $350 billion of assets under management. The flow of Russell's business is evenly split between listed and OTC transactions.

His five equity traders - that number includes himself - use a sector approach to trading. That is another reason why Russell is a stickler for research. "Traders, in a sense, are the portfolio manager's eyes and ears to the trading world," he says. "The reason my desk moved to a sector-based structure was to better align trading responsibilities with research coverage."

The structure works well. "The move has increased the day to day interaction between the groups, which can only lead to the more efficient exchange of information that should, in turn, lead to better performance," Russell says. The desk uses program trading to manage cash flow.

Russell also believes that experience counts, stressing that the average time of a professional on his desk is 15 years. Russell himself also has had a long trading life. That is if one counts his youth. He has almost always had a great attraction to the stock market.

"I have always been interested in the stock market," Russell says. "My father was probably my greatest influence. He wasn't a Wall Street guy, but he had always been in the market. That led to my involvement in various investment clubs in high school and later in college."

Before Franklin, Russell, however, said he knew little about the institutional business. At Franklin, he vividly remembers big trades that introduced him to a new part of the stock market. For example, he recounted his first million-share print. "Mine was the sale of AMF Bowling at $12 back in 1998," he says. "I still have the ticker tape. I think they filed for Chapter 11 recently."

Russell, who also worked on emerging market bonds, remembers the time when the Mexican peso, under attack by various speculators, was allowed to float back around Christmas 1994. "Needless to say," Russell adds, "I was a little busy over the next few days, weeks and months as we traded around some of these positions."