Internet Fund Managing

The Internet has shaped every way in daily life, including the way fund managers' operations. Traditional fund managers open their stores, recruit crews, investing fund, and report performance to clients quarterly and annually. The Internet provides a new platform for fund managers to communicate with their clients in very transparent form. But keep your eyes open while shopping.

Some Internet fund managers provide daily performance and trading history over in the past year or the fund life cycle. It is unknown what the deal is here for daily return. Does that mean the fund is a day-trading fund? You can tell from trading history that some do so.

Some fund managers have very high turn over rate. Not surprised about having daily trading performance lists. Some others, like value type fund managers, have very low turn over rate.

Most managers have fund below $25M under management. Investment types range from value, growth, income etc conventional styles. The Internet does provide a quick for clients to communicate with fund managers. Clients ask questions openly and get answered quickly about how trades were done.

Fund portfolios are transparent to clients and non-clients. You can simply duplicate the portfolio on your own risk. There is usually some minimum requirement to join funds. Managing fees are less than big brand funds, such as 0.75% or 1%.

Internet funds provide an option to conventional managing models. It is certainly still at a fledging stage.

Quantity vs. Quality

Taiwan's largest electronic OEM Hon Hai has troubled in their 800,000 employee facilities in China that there were 10 suicides in a row in their campuses. Hon Hai has big brand customers such as Apple and HP. Plants with scale of 800,000 employees are hard to do micromanagement anymore. In fact, they are just or part of machines, literally, machines. Ironically, there is absolutely no wrong doing in company's management. Hon Hai borrowed these lines from Japanese and this was how they get to here today. So who to blame?

Technology business is not always about breaking through convention via R&D. Many tech companies are working on techniques and attempting to achieve economical break through (such as lower cost and faster time-to-market) instead of completely new ideas. Worse, the need of manufacturing management brings huge overhead on efficiency, corporation wise and social wise such as Hon Hai's case.

Compared to tech's intelligence intensive plus labor intensive, what is common to the investing business? It is all started from people, intelligence and money. Big name investors always claim that investing isn't rocket science but simply fundamental, accounting, and discipline. Is that really so? As the days that only buying and selling stocks have long been replaced by complicated financial products developed by highly educated personnel, the simple minded investing thinking may not apply any more. Take the example of Lehman's collapse. Many investors relied on rating agencies investment ranking on Lehman's bond without, or not able to, knowing the fine prints. Lawsuits against rating agencies were sporadic around the nation but none of them has been successful so far. The bottom line is that investing is not simple anymore. Highly intelligent take well advantages to design quantitative trading models. It seems more object oriented: the goal is to use high tech to make profit.

But what is unique in the two? Business cost is one of them. This is why GE's Jack Welch brought GE Capital from almost nothing to over 30% of GE's revenue in his tenure. Manageability is another. Tech business is more visible, either break or make. Investing is more the science of art although tools like advanced mathematics, statistics, computer science, and computer technologies are much needed as the business environment is different.

Foul or no foul?

May 6 2010's dramatic drop triggered investigations and regulation on whether the market been manipulated by some force, either human or mechanical. So far, no official conclusions have been reached. Materialized corrections include trades are provoked if they are over 60% trading range. It may take a while to figure out what the root causes are even though essays after essays have described how the liquidity dried out during the a few minutes.

This "unacceptable", as the SEC head labelled it, could very be caused by trading systems or human authorized trading systems. Sooner or later we will find out. The more fundamental question is that, regardless what actual trading systems are used, is the drop acceptable? In fact, before May 6, the market has inclined to correction mode for a couple days, on and off. Such weaving may train trading systems all over to the sell side. Note that many trading systems don't have human visibility. No one knows what the systems are actually buying and selling as long as there are such signals. After setting parameters, they just run.

Trading analysis tools are not new. In the 90s, there were quantitative trading (the Quant) and evolve to high frequency trading. PhD's try to find out what trading models can be used to predict market trends. Once they find that, jackpots are hit. The lucrative business model supports many trading firms. Articles on such algo trading or high frequency trading appeared in the media frequently. One founder of a firm simply put in this way, it (the firm) is just me and my partner and our computers.

The systems made correct prediction indeed, given that large overshoot also occurred. Note that investing strategists have warned in April that the market was due for a correction. But such predictions were mostly shrugged off. So when it is actually realized, it is hard to swallow. Circuit breakers are intended to stop the overshoot but they can't stop the trend, no matter how the trend is predicted by human or machines.

Euro and Asian currency plays

Euro has been dropping quickly as the debt crisis sweeps. At the same time, the US dollar and Japan Yen rose quickly. Common understanding is that the Chinese Yuan, even though it was widely considered to be rising a couple weeks ago before the Euro zone problem spread out, would not rise soon. So the dynamics is mainly on the US dollar and Yen. Also because the $1T bill passed in Europe, the Euro will still face pressure in long run. That would affect investing decisions.

Although after years of development, many multinational companies have been well diversified, in a sense that currency fluctuation won't affect their revenue dramatically through manufacturing site arrangement and currency hedge, there are still a lot that rely heavily on the European and Asian markets on their revenue. These pure product "seller" companies will have hard time in the rest of the year.

Frugal spenders in Europe have to tight up their purse while Asian countries, mainly China, enjoyed over 10% growth in the past year, have to slow down because of inflation. Looking up company's revenue analysis and locking down those with more that 60% revenue from overseas, these company will have higher risk on their impact. It is not difficult at all to find out there are not a few, but many of them to be due for correction in the coming months. This provides wonderful opportunity especially after a strong rebound in 2009.

Following the same logic, European companies, strong and weak, are not good buy yet. For the strong ones, the timing may come when the Euro is stable.