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February 18, 2010

On the Move

By Michael Scotti, Editorial Director

One important factor behind any investment decision is whether there is sufficient liquidity. Apply that same liquidity question to exchange-traded funds, and the answer is often less clear. The big liquid ETFs are easy to trade, but not all ETFs are created equal.

Michael Scotti

This month's cover story takes a look at what's behind trading these funds, whose popularity and number have mushroomed in recent years. Right now, the trend shows that a number of agency brokerage firms are entering the ETF transaction business. Traditionally, trades in illiquid ETFs required capital, but in the recent years, capital has dried up.

The good news is that more firms are joining the ETF party, offering their brokerage services. These firms are taking advantage of new technology and innovative ways to find the natural or contra side of a trade. In the piece, you'll see the results of reporter James Ramage's work. His dozens of phone calls and numerous interviews uncover a new side of ETF trading.

You'll also find a feature story that shows how JPMorgan Asset Management is using trade cost analysis to improve fund performance. The new wrinkle is that the TCA analyzes the history of how each portfolio manager interfaces with the market. The idea is that portfolio managers have tendencies in their stock-picking process. Consequently, there is a high probability that stocks follow the same pattern once the trader receives an order from his or her manager. The story delves into how investors can benefit when traders "Trade the Manager."

Nina Mehta, who wrote the piece, left Traders Magazine last month after five years here. It was a pleasure to have worked with a true professional like her. We wish her well. Nina moved to Bloomberg, where she went to cover the exchanges and market structure beat. Nina did a fabulous job for us, and we'll miss her.

On the flip side, I'm pleased to announce that John D'Antona Jr. has joined our staff as a senior writer. John is a 20-year veteran reporter who has specialized in covering structured finance and mortgage-backed securities. I'm betting that John will settle smoothly into the equities business.

You see, John understands trading; it's in his blood. His father, John Sr., worked on the mortgage-backed trading desk at Salomon Brothers under Lew Ranieri--the man who ran the desk and was immortalized in Michael Lewis' bestseller "Liar's Poker." I'm looking forward to working with John D'Antona Jr. In the meantime, enjoy the issue.


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