The ongoing shift to passive from active management and the increased volatility of equities over the past year have challenged buy-side head and senior traders, a study from the TABB Group shows.
The streamlining of funds' execution infrastructures, as well as unbundling, have also contributed to the challenging environment, the study said. As a result of these changes, money managers say they have reduced U.S. commission pools significantly, by 27% from 2017 and 42% from 2015.
According to the study, "U.S. Institutional Equity Trading 2019 Trends: Is Active Management an Endangered Species," the move to passive management is accelerating, and many larger firms are unbundling research from execution commissions, which has caused them to drop precipitously.
The study also says medium-size firms have cut research budgets by 15%, leading to a decline in research spending of 9.9% from 2017 to 2018, and independent research budgets appear to be "on the cutting block" for 2019.
All is not doom and gloom, however, the study says. Among the new innovations ahead are money managers rethinking technology strategies, and brokers' reinvention of execution infrastructures.
"While this will be a painful few years," said Campbell Peters, research analyst and co-author of the study, in the news release, "we'll transition into a leaner, more efficient equities industry. The buy and sell sides will be more automated. We'll leverage new and more interesting data streams to find, quantify and capture alpha. There will be novel ways to trade, and the world of institutional investing will become less secretive and more open for the end investor."
The study is available for purchase on TABB Group's website.
