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March 18, 2010

A Balanced Approach

By John D'Antona

A 23-year veteran like Clarence Woods Jr. has relied on one thing to navigate the ups and downs of the marketplace over time, and it is balance.

Clarence Woods Jr.

At MTB Investment Advisors in Baltimore, where Woods is chief equity trader, he looks to balance relationships, personal communication and technology. These, he believes, are the keys to long-term success.

"When I look back, as much as the business changes, it still stays the same. It all comes back to people and relationships--understanding your customers," said Woods, whose first year trading was during the 1987 crash. "Although we have various ECNs and dark pools, I'm still one for as much verbal communication as possible."

To that effect, Woods' trading desk is constantly interacting with the firm's three portfolio managers--whether it is done by phone, electronically or face to face. That coincides with a streamlining of the investment approach at MTB, which runs $3 billion in equities and is primarily a growth manager.

The firm uses a team approach to run the portfolios--large-, mid- and small-cap strategies. Each team has a lead portfolio manager and three to five analysts. "The three teams are run like different firms--separate entities, but all with the same goal to improve performance," Woods said.

Traders are interchangeable, but each one is assigned to a team, he added. One change coming will be a new order management system. ConvergEx's Eze Castle should be installed by the end of the month, Woods said.

And as much as Woods believes in the spoken word, he confesses that half his desk's business is done electronically. Still, Woods explains that he is baffled by some aspects of the business today. "I have spoken to a lot of individuals on the buyside who've told me they almost never talk to their trader at a particular firm," Woods said. "And I'm not sure if it bothers them or if they just don't know better."

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On dark pools, he said: "If you trade electronically, you can't avoid them. I don't go out of my way to find them, but I don't discriminate against them either." However, trades requiring more attention get handled by a trader.

"We're willing to give up cost savings for strong partnerships and relationships and protection of execution quality," Woods said.

That mantra fits well with the firm's clients, who are high net-worth individuals, small corporate pension plans and various trusts, all of whom desire an interactive investment approach. While the high-touch strategy might cost a few more cents in the short term, Woods sees the long-term benefits of better trades.

Whether the trade gets done in a dark pool or the displayed markets, or even by a broker upstairs, all are held to the same standard of best execution for size and price, Woods said. He looks at how far the industry has come in getting clients the best price. "Ten years ago, spreads were a quarter point," he said. "Now if you move a stock two pennies, people get upset."

 

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