Managers Overlook Transaction Costs
Byline: Mike Foster
Individual active managers are failing to take account of transaction costs before choosing which stocks to insert in portfolios, according to Alasdair Haynes, chief executive of ITG Europe.He says: "I'm surprised that most managers are continuing to pass orders straight to central dealing desks rather than checking the costs of trading them first.
"Costs for different stocks can vary by between five and 10 basis points, or 5% to 10% for smaller stocks. The difference can have a material impact on performance."
ITG Europe, the technology-based equity trading group, started a fund manager desk-top cost analysis service called Agency Cost Estimator (ACE) a year ago.
ACE forms part of a trading package which includes access to ITG's Posit crossing network. It calculates potential trading costs on a real-time basis.
Haynes says that managers using quantitative techniques tend to be diligent in using it to calculate stock-by-stock trading costs.
ACE has proved to be particularly popular in the Netherlands. …