Howard, you started financial markets trading in 1986. Are you surprised at the way FX trading has changed, particularly with regard to electronic trading, since you began your career?
When I started in the Foreign Exchange market over 25 years ago we executed our business over the telex, telephone and through voice brokers, and we monitored our risk using manually written tickets and positions calculated on blotters. Dealing rooms were noisy, intimating almost chaotic places with mountains of paper and high instances of “out-trades”!
It was hard then to imagine a distant world of “STP”, real-time valuations and risk analysis, paperless dealing rooms, instant executions with the click of a mouse and even robotic systems built to auto-trade without any dealer intervention.
Looking back, these changes have been more of an evolution rather than a revolution, and whilst increases in technological advancements, liquidity, user participation and the methods to trade in FX have been phenomenal, witnessing this innovation and growth as it is happening has almost made it appear methodical, logical and even protracted.
You joined TEAM Asset Management in 2008. What attracted you to the company and how is it structured and managed?
Having spent my entire career working for global financial organisations, the prospect of being offered a new challenge where I would be in full control of the activities, the products, the growth and the success of a small investment management group was as unique as it was interesting. I had previously enjoyed a close trading relationship with Carl Corbel (one of my business associates at Team Asset Management) dating back to the mid 1980’s, and when in 2007 he suggested we formalise our partnership in a more structured, regulated environment, the whole concept snow-balled. Add to this the fact that the business is located in a multifaceted financial centre with a strong regulatory, political and affluent environment, and the opportunity was just too good to pass by.
TEAM Asset Management is a fully regulated, diversified asset manager, which is owned and run by four principal Directors (Carl Corbel and myself being two of these). Each of our four Directors have extensive market experience covering a wide range of disciplines, from Traditional Asset Management, Treasury, Alternative Investment Management, Derivatives and Foreign Exchange Trading.
By combining this array of expertise under one roof, we feel we are in strong position to deliver adaptable, independent and bespoke advisory, wealth management and execution services to a wide range of clients.
Being part of a small group I think it is absolutely essential to have a common understanding, mutual trust and collective reliance between the business partners; fortunately with TEAM Asset Management we all adhere to those basic principals.
What type of clients are likely to be drawn to and benefit from, the investment services that TEAM offers?
Our Investment Management Services centre on the concept that each investor has different investment objectives; it’s not a one size fits all approach.
Unlike the “larger” houses that tend to sell “products”, we look to work closely with our clients to develop tailor-made strategies, and each investor has direct access to the Investment Manager. Because we do not have a suite of investment products nor operate proprietary risk against our customer transactional business, our advisory and execution-only services are truly independent and thus made in the client’s best interest.
We believe this bespoke approach potentially appeals to all types of clients and investors.
What core services does TEAM offer?
TEAM historically have focussed on the provision of traditional portfolio asset management and advisory services to a wide range of investors (from high net-worth individuals, trusts, charitable institutions, funds etc). Supporting these services we have since introduced three new initiatives: Discretionary Foreign Exchange Managed Account Services, an Internet Trading Platform (TEAMtrader) and Independent Treasury and Foreign Exchange Advisory Services.
The firm operates an integrated Internet trading platform called TEAMtrader. What generic services and key functionality does the platform provide?
TEAMtrader is a multi-asset, Internet trading work-station that delivers round-the-clock, live executable prices in over 3000 global instruments (including spot FX, and CFD’s in global equities, indices, commodities and interest rates) along with streaming news, a full charting package and external market analysis.
Aimed at the more experienced, wholesale user, TEAMtrader can be used as a trading, investing or hedging tool, and is supported by our in-house market insight services.
We believe TEAMtrader is the only platform of its kind located in the Channel Islands, and one of only a few available in a tax efficient jurisdiction.
Can you tell us a little about how TEAM’s discretionary Foreign Exchange Account programme is managed and what key objectives it aims to achieve?
TEAM’s discretionary Foreign Exchange programme is managed jointly by two Investment Managers each with 25 plus years trading experience in the FX and Derivatives markets. Our six year track record emphasises our long term objectives; to offer investors uncorrelated, non-cyclical absolute returns with superior performance from a leveraged facility of up to ten times capital.
The recent financial and economic turmoil have confirmed our long held suspicions that it is extremely difficult to find truly non correlated asset classes. In our opinion, most forms of systematic trading cannot, by definition be un-correlated.
What is different about your foreign exchange discretionary managed account service?
As we have alluded to earlier, each of the four principles at TEAM have accumulated considerable experience in their various areas of expertise. Dealing with clients at corporate and individual levels requires an understanding of what clients ‘really’ want from their asset manager, and an openness from the manager in terms of what he can deliver.
Over the past months, investors have learnt hard lessons. In our opinion, clients no longer wish to have their assets locked up in illiquid products or funds. They require the transparency of charging, trading and access to the actual investment manager so as to fully understand the investment rationale. Investment management is not just about “managing money”, it is also about “managing investors”.
We believe that our managed account delivers all the above requirements. Through a view only access to our internet based trading platform, clients can monitor their own account real-time 24 hours per trading day. Trading is only undertaken in spot foreign exchange, and thus if ever the investor requires it, positions can be closed and redemptions made within a very short timeframe.
This kind of transparency, liquidity and service is very hard to find amongst the structured product and fund industry today.
What are the main parameters such as risk/reward ratios and stop-loss limits etc, that govern the control of your trades?
We, as discretionary traders, base our trading rationale on many years of front-line market participation in the foreign exchange market. Between us, we like to think that our combined 50 years of experience in the treasury/ FX markets enables us to cope with the many highs and lows of the foreign exchange market environment
Discipline and stringent risk management constitute the foundation of the trading technique, which can be classed as a short to medium term strategy across the major currency pairs and related crosses. By applying a rigorous and quantifiable approach to risk and reward, we look to make price action work for us rather than against us.
Our risk reward strategy is based on making money despite have more losing than winning trades. The key to our programme is for all trades to have a minimum profit to loss ratio of at least 3:1.
We have a guideline stop loss of 1.5% per trade of the un-geared collateral and a full trading review in the event of a 15% drawdown during one calendar month. Profitable trade sizes can be increased but losing trades are closed. Potential losses are ‘never’ increased but profit potential is (in theory) unlimited.
How many investment managers does TEAM consider to be an optimal number to maximise the trading strategies you employ with your programmes?
Discretionary management by one person can expose profit and loss to human emotions such as fear, over-confidence and greed. Despite the best investment processes and vetting by investment committees, they frequently materially impact the trading rationale and thus performance negatively.
By having two managers whose methods are congruous and distinct, yet carry equal weight and subject to counter-scrutiny, we believe many of these detrimental factors can be properly controlled at the micro level, and the truer foundation of the analysis maintained.
What steps do you take to mitigate any significant risks prevalent within a full discretionary programme?
A credible liquidity provider and custodian is essential to ensure clients assets held in segregated accounts are as safe as is reasonably possible. To help reduce trading volatility, we only trade the most liquid currency pairs. We ensure that each trading position satisfies our risk potential versus our profit objectives and we constantly monitor stop losses and profit objectives with the goal of reducing the former and increasing the latter.
What factors are likely to strongly influence your trading technique and how is your trading approach structured to capture profits?
In simple terms, we predominately search for small trends either within, or counter to larger trends. Once identified, an initial trade is placed. If the trade becomes profitable, further units may be added in an attempt to utilise the leverage within the programme. Factors that influence each trade may include technical analysis, fundamental short and long term influences as well as current economic data.
What tools and techniques do you use to strengthen your proprietary analysis?
Our ideal trade will have either technical formation backing our proprietary analysis or vice versa. Our current favoured technical indicators include Candlestick-charting, momentum, DMI, oscillators, and flow patterns.
How often do you alter the relative weighting and significance applied to each evaluation tool that you commonly utilise?
I believe adaptability is the key (and challenge) of any successful trader. Certain analysis techniques, whether they are technical or fundamental, move in and out of favour; some which resulted in a move in one direction yesterday may result in opposite move tomorrow! As a discretionary trader, understanding “when” this happens (rather than why) is vital!
Your trading strategies are flexible and non-systematic. Would you consider adopting a more systematic approach to trading strategies given suitable opportunities?
The market is made up of an infinite amount of human forces and deciphering this psychology into a logical format is in my opinion impossible. However, certain systematic approaches have proved extremely (almost unchangingly!) accurate, and without doubt have a place within this multifaceted market, so yes, we would consider using a stable market forecasting system, but only to enhance our own trading analysis. However, to my knowledge no system has been built that can capture the three basic market types; major trend, counter trend and range bound.
Any trading system that predicts the market correctly and profitably over the long term must face defeat unless kept secret. For instance how could a system factor in possible front running of their trading orders? Surely, the more profitable the system, the more widely watched by brokers and dealers each trade would become? Ultimately, the system may even be ‘the market’.
Put another way, just as our discretionary management techniques need to be continuously adapted, so does a systematic model.
For us as traders the challenge is to successfully evolve in a continuously changing environment, and flexibility within our investment rationale is extremely important in this regard. For instance, the ability to be able step back from the market and not trade (for a limited period) as the dynamics within the market change can be invaluable.
Nowadays, how reliant are investment firms like TEAM on their trading technology infrastructure and do you prefer to develop and operate your own proprietary systems or utilise specialist outsourced suppliers?
We are fortunate that in this day and age modern internet based trading platforms (such as TEAMtrader) are available from liquidity providers in the foreign exchange market. They enable a small investment house such as TEAM to provide front and back office solutions for clients that 20 years ago would have required the resources of a major financial institution.
Do you see trading technology and systems becoming a potential differentiator amongst investment firms in the FX space or is human experience and trading expertise likely to remain the most important factor governing choice of manager?
Trading technology will undoubtedly continue to grow at an exponential pace and become more of a feature within Foreign Exchange Investment Management, and indeed, completely removing human intervention and emotion does have its merits for an Investment Manager. However, where a pure systematic trading model has an undetermined life-span, I believe that the human element in trading and managing investment risk (particularly over the medium term) will always be necessary.
Global financial markets including FX, have been extremely volatile over the last few months. How have your systems and strategies performed during this very challenging period?
Like many, we did not react as quickly to the changing market volatility as we would have liked although our discretionary programme is still up approximately 5% YTD.
Spotting the change in market sentiment, trending volatility, and liquidity early enough to profit from the resulting moves remains our prime goal. For us volatility does equal opportunity, however, our goal is to make a profit not be a ‘prophet’!
Looking to the future, do you expect to see significant growth in foreign exchange Managed Account services and if so, what will drive this and where will it come from?
Yes, as I mentioned in an earlier question, I think that the financial markets meltdown in 2008/09 will have dramatically changed the way investors and investment managers allocate to the market. Previously, investment diversification seemed relatively simple using the traditional asset classes such as equities, bonds, property and cash across regions and continent. Now it is much harder to achieve a truly diverse portfolio. Tangible assets such as commodities will play a much bigger part in future portfolios. Risk will be re- evaluated (although perhaps not better understood). Many of the traditional ways of measuring risk have been proved to be fundamentally flawed during the markets recent turbulence. Infamous Black Swans and Bell curve tails implying odds of millions to one of a probability happening, actually happened! These methods will be revised.
In this changeable investment climate the transparency, liquidity and diversity of discretionary Foreign Exchange will have a big part to play. It is sure to be an exciting and challenging period for anyone involved in Foreign Exchange management.
Our foreign exchange trading strategy is named ‘Aggressive’ and it is sold as a risky investment. In these days of algorithmic/black box/ quant’ models, we offer a return to opportunistic, sensible, experienced, visible and intuitive investment management that we believe will appeal to many disillusioned investors – perhaps even for just for a small part of their diverse portfolio!
Howard Carr is a Director of TEAM Asset Management and is a Fellow of the Securities and Investment Institute. For further information on TEAMtrader and other TEAM Asset Management services please visit www.teamassetmanagement.com
TEAM Asset Management is a trading name of Theta Enhanced Asset Management Limited which is registered with the Jersey Financial Services Commission to conduct investment business