Big Data Trading Tools: Advisors & Fintech Part 5

[This article appears in the February 2016 issue of ETF Report. This is the fifth of a five-part series: Building Better Portfolios; Tools For Strong Messaging; Paper Trail Preservation; Efficient Office Software]

Never before has so much information been so accessible by so many. And for the most part, that's a good thing: Big data has democratized access to research and slashed the cost of entry for many investors.

But big data is also like a big river: You have to keep up with the current, or risk drowning. That's where next-gen trading tools can help.

Know The Market
Dozens of cloud-based tools and apps—far too many to name them all—now allow investors to slice and dice terabytes of market information in seconds.

For example, two popular data visualization tools are StockTouch, an iPhone/iPad app that creates price charts, heat maps and other performance infographics; and StockCharts, a Web-based tool that makes charts and overlays simple calculations, such as moving averages or trend lines.

For market research, there’s Bloomberg for Smartphone, which lets you to take your terminal on-the-go (the app even looks and works like the old-school hardware back in your office). A cheaper alternative is Money.net, which provides real-time market news, quotes and other info for $95 a month—or a fraction of what other data services cost.

Of course, there’s also our very own (free!) ETF Finder on ETF.com, which provides key stats and expert analysis for more than 1,500 ETFs.

The 30,000-Foot View
Some companies offer investors more of a bird’s-eye view of the market, using big data to shed light on tradable macroeconomic trends or investment strategies.

Kensho, for example, is like a financial Siri, allowing users to ask questions about how real-world events will impact markets. Users pose a query, and Kensho searches through thousands of company filings, news reports, market data and other data to find the answer.

Premise Data, meanwhile, parses economic trends in real time by deploying smartphone-armed locals in 30 countries. These “contributors” snap photos in grocery stores, markets and more, capturing millions of data points about the price of food, energy and other goods in otherwise-remote locations.

Meanwhile, investors interested in how institutions strategize can look to eVestment. Advisors can scour the company’s vast database of institutional holdings to research the competition, evaluate strategies and compare their portfolios to hundreds of market indexes or active strategies.

Tomorrow’s Trading Platforms
Most portfolio management tools also package with them some flavor of order execution and rebalancing. And most online brokers, from Etrade to Schwab, now offer apps that let you place trades straight from your phone or tablet.

Some brokers go one step further, targeting specific investor desires. Interactive Brokers, for example, caters to the active trader. The platform’s high volume keeps costs low: Commissions start at half a penny per share.

For those interested in crowd-sourcing their strategies, there’s Motif Investing, which allows investors to construct and trade themed portfolios—known as “motifs”—of up to 30 ETFs. The firm charges just $9.95 per transaction.

The big-data era has opened up whole new worlds to investors, but the available trading tools help them navigate their way through the vast expanse.

DORWIN SEES FASTER TRADES, FEWER ERRORS WITH TAMARIC

Kevin Dorwin is managing principal at Bingham, Osborn & Scarborough, a $3.5 billion San Francisco-based advisory firm. More than five years ago, the company switched to Tamarac (now Envestnet|Tamarac), one of the industry’s largest providers of trading and rebalancing software.

Envestnet|Tarmarac offers a full software suite for advisors. Do you use any of those other features, too?
No, we only use their trading system.

Before you adopted Tamarac, what did you use for trading at your firm?
We had a home-built Excel program that fed into the trading platforms of Charles Schwab and Fidelity, where we custodied most of our assets.

Why switch?
We wanted to become more efficient, to standardize and institutionalize our trading approach. With a home-built program, you have to have somebody in-house who can manage it. As you get bigger and scale up your business, that becomes very challenging to maintain.

Plus, home-built programs aren’t as robust as the software programs currently available out there. They tend to make a lot more mistakes, which was costing our firm quite a bit of money.

Why choose Tamarac versus one of its competitors?
We liked Tamarac for a few reasons. First, the way it thought about constructing diversified portfolios was a good match for how we thought about things. We divide our portfolios into asset classes or markets; so we have 15-20 markets in a portfolio, and each of those markets can have submarkets. Tamarac lined up extremely well with that, and it matched up to our prior trading system, so we could maintain some commonality between the old system and the new.

We also try to be tax efficient, and Tamarac had good capabilities in terms of allocating certain investments to retirement accounts versus taxable accounts, and so on.

Did you find Tamarac easy to implement?
Admittedly, it took us a few years to implement fully. There was one point early on where we thought about abandoning it, because we had a number of users who were having trouble learning the system.

But this can happen with any technology implementation. Part of it was due to how it standardized things. Once you go to a system like this, everyone has to eat off the same menu, and if some people still want to do their own thing, then it won’t work out well for them. We now use Tamarac 100% across the board.

What benefits does Tamarac offer?
First, it dramatically cut down on trade errors. We have less than $10,000 in trade errors in a given year, whereas before we’d have seen three or four times that.

Tamarac also offers some efficiencies and cost savings, in terms of how it batches trades that are sent through to the custodian.

It also lets us implement trades more quickly. For example, not too long ago, we worried there would be some liquidity issues with the high-yield bonds in our portfolio, so we wanted to sell out of every client position in them. With Tamarac, we were able to do that within a day or two, whereas that would have taken us a week or more in the old system.

The other nice thing about Tamarac is that it’s recording every action and trade you’re taking. So there’s this running history of activity in a client account, which you can use to go back in time as needed.