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Jared Dillian
Traders Magazine Online News

Was it Worth It?

In this piece from 10th Man, author Jared Dillian discusses how the ETF revolution is less about ETFs and more about indexing; about how people have come to view stocks less as stocks and more as blobs of stocks.

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February 16, 2009

With an Ear to the Ground

By Michael Scotti

Michael Fenske, a 12-year veteran, explains the daunting task that financial traders have faced since last March, when the fall of Bear Stearns unofficially launched the current loss of faith in markets: "I've worked harder and longer this past year than any other in my career." A senior trader at ING Investment Management, Fenske was not alone in dealing with the unprecedented volatility, rumor and news flow that came at traders with the force of a fire hose.

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"You had a day when Genworth Financial was down 56 percent, and later on, it was up 20 percent," said Fenske, adding that stocks often bounced on no company news. "This is where you earn your keep, where a trader can add value" by picking the right spots to trade. As difficult as it was to predict the movement of stocks, Fenske believes that the good traders were able to spot trends more often than not. "That's how you differentiate yourself from the pack and help your PMs, funds and firm," he said.

Managing the news and "nonstop" information flow about the government bailout and the companies themselves proved to be a steady uphill battle. Even while home, Fenske found himself at his Bloomberg scanning the latest news. On weekends he'd get calls from management, looking for the trader's insights.

But that's what it took to be the eyes and ears of the portfolio managers in 2008. "In an environment where stocks move quickly--and sometimes we'd see stocks move 20 percent in 10 minutes--you can really help your portfolio managers by being on top of the news flow," Fenske said. He credits his boss, Nanette Buziak, who heads trading, for sectorizing coverage and streamlining the communication loop between traders and managers. That paid dividends during the mayhem, Fenske said, because stock pickers could make on-the-spot trading decisions.

During that volatile March-to-November period, Fenske notes that sales traders were shopping a tremendous amount of natural merchandise. Because of the deleveraging, hedge funds were forced to "open up" to move large positions. Fenske has been a proponent of algos and dark pools--about half the firm's flow is now executed electronically. Still, institutions needed a sales trader for urgent situations demanding liquidity, because executing size in algos and dark pools alone would have been impossible.

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Fenske believes that sales traders proved their worth during this period. And if liquidity should lessen in the coming year, their "niche in the small and mid caps could grow more important," said the trader, who also oversees ING's small- and mid-cap trading.

When electronic trading isn't effective, "and you need to trade stock--to get something done--you have to rely on a sales trader and his firm," Fenske said. "Whether it's committing capital or finding the natural, you need solid relationships with people who understand your trading style."

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