Volatility & Opportunity: Allocating Across Accounts Efficiently

Price volatility creates opportunity. While uncertainty in the market presents its challenges, it offers investment managers the chance to take advantage of price swings in order to book the gains once markets stabilize. The dislocation seen in bond markets in recent weeks is an excellent example, providing a rare opportunity for investment managers to back up the truck and buy at great prices.
The 10-year Treasury yield experienced a historic slide as COVID-19 and the oil market saga pushed investors away from riskier assets in favor of the historically safer fixed income markets. The yield touched an all-time low of 0.318% in March, and now stands around 0.6%, down from above 1.8% at the beginning of the year.
The question is, how can investment managers take advantage of these opportunities?

The Challenges of Rebalancing and Trading Across Thousands of Accounts

Making trades across thousands of accounts is time consuming. As margins tighten, many managers are being asked to do more with less. Portfolio managers want to make thoughtful investment decisions based on each client’s unique goals, identifying opportunities to optimize performance.
One area that causes managers trouble is the allocation process. Active managers are often tasked with allocating trades across hundreds of accounts, while ensuring compliance with individual investment guidelines and firm targets. When trading at scale, managers need to assess the risks associated with a given security, the suitability for all relevant clients, and ultimately, the appropriate allocation across each account. Often, due to time constraints, parts of this process are done based on gut feeling. In the time it takes to manually identify the appropriate portfolios and mock-up the respective trades, the order may have been filled or markets may have shifted, adversely impacting the trade.
As volatility creates dislocations and opportunities for managers, it also increases the likelihood that portfolios deviate from their guidelines or targets. During these times, clients are also more likely to seek the attention of their managers, creating additional time constraints for investors who would ideally be capitalizing on opportunities in the market. It is critical that PMs digest all relevant information rapidly so they can act swiftly and decisively to reposition portfolios, but unfortunately, their time is often much more limited when markets are in flux.
Many firms are also hampered by legacy systems that are clunky, siloed, and lack flexibility. Existing technology tends to be focused on equities or reporting, featuring metrics and functionalities that aren’t necessities for fixed income managers. Having the bandwidth to take advantage of market dislocations and new opportunities comes from streamlining the bond investment process.

Driving Efficiency for Fixed Income Portfolio Managers

Firms are now increasingly implementing new technology solutions to overcome resource challenges and to unlock efficiencies. Investment management systems provide a solution that can integrate data, codify compliance rules, and assist with portfolio management and reporting; it can make a big difference in optimizing investment processes, helping a two- or three-person team to operate more like a 10-person team.
Technology that scales a manager’s capacity enables them to:

• Gain visibility into the entire investment workflow: Integration with existing systems including custodians, execution platforms, internal systems, and accounting software allows PMs to see all data in one place.
• Assess and execute trades more quickly: Ability to see bond exposure across accounts enables managers to identify potential investment ideas, mockup trades, and execute faster.
• Remain in compliance: Identify accounts that need attention because holdings have shifted out of investment guidelines or compliance rules.
• Focus on servicing clients: Time savings from automated processes and connected systems enable PMs to spend more time on client service.
• Minimize risk: Connected systems and increased visibility allow managers to take more calculated risks, while reducing human errors from manual processes.

Many wealth managers, asset managers, trusts, and community banks would typically need extra headcount to help them deal with managing thousands of accounts. But by investing in technology, firms can effectively capitalize on the market opportunities that volatility provides; connecting systems with clean data and unified processes enables a level of productivity that wouldn’t be possible through manual and siloed efforts.
Want to find out more about how cloud-based investment management systems can help you to grow? Learn more about NOVA.
This paper is intended for information and discussion purposes only. The information contained in this publication is derived from data obtained from sources believed by IMTC to be reliable and is given in good faith, but no guarantees are made by IMTC with regard to the accuracy, completeness, or suitability of the information presented. Nothing within this paper should be relied upon as investment advice, and nothing within shall confer rights or remedies upon, you or any of your employees, creditors, holders of securities or other equity holders or any other person. Any opinions expressed reflect the current judgment of the authors of this paper and do not necessarily represent the opinion of IMTC. IMTC expressly disclaims all representations and warranties, express, implied, statutory or otherwise, whatsoever, including, but not limited to: (i) warranties of merchantability, fitness for a particular purpose, suitability, usage, title, or noninfringement; (ii) that the contents of this white paper are free from error; and (iii) that such contents will not infringe third-party rights. The information contained within this paper is the intellectual property of IMTC and any further dissemination of this paper should attribute rights to IMTC and include this disclaimer.