Why is Engineering critical to the ETF Portfolio Management process?
ETC’s PM team has developed proprietary systems for portfolio trade modeling and analysis, workflow automation, and customized performance and post-trade reporting for clients.
The daily activities of ETF portfolio managers can vary depending on whether the fund being launched or managed is an Index or Active ETF. One thing that remains the same is the importance of engineering in the portfolio management process. ETC’s Portfolio Management team aligns all the moving pieces involving the exchange, the regulators, fund administration, the AP/lead market maker, etc.
The PM team uses python-based code and open-source tools for their trade and data management systems. These platforms allow for agile development and quick integration with new service providers and client systems. Some of the features have been developed to improve operational efficiency and simplify trading workflow, as we describe below in more detail.
ETF Rebalance
Index ETFs have a specific set of rules and time frames that portfolio managers follow since they rebalance on a set schedule. For Active ETFs, portfolio managers rebalance with instructions from a specific investment adviser on an ad-hoc basis. With the differing rebalancing time frames between Index and Active ETFs, having the technology to simplify creation-redemption basket workflow is essential.
Data Management
Portfolio managers are systematically monitoring thousands of securities, tracking and pricing the portfolios, and providing daily analysis of corporate actions, cash management, and accounting breaks. ETC’s platform is engineered to handle large amounts of data by integrating third-party, open source and proprietary solutions for analysis, data handling, and workflow automation.
Order Modeling
Once the rebalance is received by the portfolio managers, the basket is reviewed for gains and losses that may be realized. This is where tax advantages of the ETF structure over SMAs and mutual funds fits into the mix. Engineering empowers portfolio managers to quickly review tax lots, executing trades and redemption baskets efficiently with a trading workflow that has been tailored to the ETF creation/redemption process.
Reporting
Engineering automates compliance testing, review of diversification such as IRS RIC requirements, and produces reports confirming breaks, corporate actions, and index deletions or changes. The direct integration with service providers allows for custom performance analysis and enhanced post-trade reporting and timely tracking error attribution reports.
Ultimately, engineering is critical to the portfolio management process because it supports growth, cost reduction, and business continuity. While having the technology and automation in place creates a transparent and seamless process, it’s important to have a team with deep trading and asset management experience to sustain the platform.
If you’re looking for a way to simplify your business model, contact us to learn more about ETC’s portfolio management services.
