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5 investment industry trends behind launch of new IPOs

Posted on August 3, 2010 at 4:35 pm

I like high-level ideas, especially ones that look at industry trends.  One of the best sources of these ideas for investors requires going directly to recent/upcoming IPO filings (S-1) at the SEC website. Companies write this stuff themselves to raise money — who should know Wall Street Panorama, Tradestreaming viewor understand better about an industry than the market participants?

So, the recent float of asset management technology/network firm, Envestnet (NYSE:ENV) should tell us a lot about what’s going on in the investment management industry and the companies that service it.  Envestnet’s pre-IPO filings have great information.

Additionally, recent financial services/technology IPOs like SS&C ($SSNC), Financial Engines ($FNGN) and Green Dot ($GDOT) have all traded up more than 10% since their IPOs.

Here’s are the 5 wealth management trends Envestnet says is driving its business:

  1. Increased prevalence of independent financial advisors. percentage of financial advisors have elected to leave large financial institutions and start their own financial advisory practices or move to smaller, more independent firms. We believe this trend was accelerated in the past two to three years as a result of the reputational harm suffered by several of the largest financial institutions during the recent financial crisis. In particular, according to Cerulli Associates, an estimated 44% of financial advisors were considered independent in 2009, compared to 41% as of 2005, and Cerulli Associates projects that 50% of financial advisors will be independent by the end of 2012.
  2. Increased reliance on technology among independent financial advisors. In order to compete effectively in the marketplace, independent financial advisors are increasingly relying on technology service providers to help them provide comparable services cost effectively and efficiently, according to Cerulli Associates. For example, an advanced platform technology with fully integrated tools helps reduce the need for the manual processing of data and the use of multiple incompatible technology applications, allowing financial advisors to spend more time interfacing with their clients, while also potentially allowing the financial advisor to reduce technology-related costs.
  3. Increased use of financial advisors. We believe that the recent significant volatility and increasing complexity in securities markets has resulted in increased investor interest in receiving professional financial advisory services. According to Cerulli Associates, the percentage of households investing through a financial advisor increased from 50% to 58% from August 2008 to June 2009.
  4. Increased use of fee-based investment solutions. In order for financial advisors to effectively manage their clients’ assets, we believe they are seeking account types that offer the flexibility to choose among the widest range of investment solutions. Financial advisors typically charge their clients fees for these types of flexible accounts based on a percentage of assets rather than on a commission or other basis. According to Cerulli Associates, the percentage of commission-only financial advisors declined from 18% in 2003 to 12% in 2008. We believe that financial advisors will increasingly require a sophisticated technology platform to support their ability to address their clients’ needs.
  5. More stringent standards applicable to financial advisors. In light of the economic crisis and related securities market volatility in 2008 and 2009, we believe that there will be increased attention on investor consumer protection, whether as a result of regulatory changes, voluntary industry initiatives or competitive dynamics. Increased scrutiny of financial advisors to ensure compliance with current laws, coupled with the possibility of new laws focused on a fiduciary standard, may require changes to the way financial advisors offer advice. In order to adapt to these changes, we believe that financial advisors will benefit from utilizing a technology platform, such as ours, that allows them to address their clients’ wealth management needs, manage and memorialize decisions made throughout the process, and that assists them with recordkeeping and account monitoring.

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Photo credit: epicharmus

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  • Bringing to life history’s best investing strategies via technology (Future of Investing)

    Posted on August 9, 2010 at 1:18 pm UTC

    This post was originally included as part of an ebook that I published alongside the launch of my book, Tradestream, entitled “Tradestreaming and the Future of Investing”. The content was so good I wanted everyone to have access to it. :-)

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    At Validea, our belief is that investors can produce market outperformance by following the quantitative strategies of Wall Street greats, like Warren Buffett, Peter Lynch, John Neff, Joel Greenblatt, Ben Graham and others.  Rather than creating new strategies, Validea takes the publicly disclosed stock selection methods outlined by these successful long term investors in their writings and lectures and captures their methodologies in a systematic investment approach that allows for bottom-up stock analysis, stock screening and model portfolio creation. While advancements in technology and fundamental stock data availability have been crucial in the development of the next generation of stock screening tools, Validea’s algorithms are proprietary and incorporate aspects of artificial intelligence so that certain criteria are measured in the same way a human would measure them.

    Simple screens, like screening on the Price-to-Earnings ratio or Relative Strength, are useful as a starting point for building a portfolio, but the sophistication and uniqueness of guru-models like Validea’s allow for the selection of top rated stocks according to each proven fundamentally-based investment strategy. By vetting over 6,000 securities for over 7 years through these models, which have anywhere from five to fifteen distinct criteria, we have demonstrated the value of these approaches through our model portfolio tool. By holding baskets of stocks that pass through a guru filter, investors are able to statistically put the odds in their favor and over time, this results in 55-60% of portfolio positions winning. Applying these strategies through a disciplined framework allows for excellent potential for long term market beating returns.

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    Justin Carbonneau is a partner at Validea Capital and manages the firm’s Private Client Group. He also acts as the principal business development officer for the company and is responsible for managing growth efforts and strategic initiatives. Prior to joining Validea Capital, Justin was a controller for a Fortune 500 healthcare company where he was a member of the firm’s leadership development program.

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  • Insider trading activities (SINLetter) — August 8, 2010

    Posted on August 8, 2010 at 3:02 pm UTC

    Asif Suria has done great work over the past couple of years.  Check out what he does at SINLetter.com.

    He publishes an Insider Weekend which runs down insider buying/selling trends (a Tradestreaming hallmark) and highlights specific names that are seeing significant insider activity. Here’s the current installment.

    Insider buying increased once again last week with insiders purchasing $21.82 million of their stock when compared to $13.42 million in the week prior. Selling also increased with insiders selling $821.45 million worth of stock when compared to $498.22 million in the week prior.

    Suria compares buy/sell ratios to previous weeks’ activity:

    The adjusted ratio for last week dropped once again to 21.82. In other words, insiders sold almost 22 times as much stock as they purchased.

    On the notable buy/sell side, Suria calls out activity in Akamai (AKAM), Ford Motor (F), and Herbalife (HLF) among others.  Check it out.

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  • Barron’s gets Tradestreaming’s evolution of the investing app store (but doesn’t admit to knowing me)

    Posted on August 8, 2010 at 12:34 pm UTC

    I’m a pretty easy going guy.  I never wanted to use this platform to vent or say anything hurtful about anyone or anything.  It’s just not my style — Tradestreaming is a resource to help investors, journalists, and industry professionals make better informed decisions.

    So, it’s got me a little ticked off that the venerable Barron’s has been taking some of my ideas and repurposing them — without referencing this site.  I’m all for using my ideas and expanding on them.  I don’t have a monopoly on ideas.  Just tell your readers the source of your thoughts.  I do it.  C’mon.

    This week’s Electronic Investor article entitled “Here Come the Third-Party Apps” is a direct reference to my July 6th piece, “Inching towards an investing app store“.

    For most of us, this “open” collection of obscure programming utensils and standards—including, for example, a programmers’ tool kit with the memorable name SDK, or files tagged with the extension .XML—will be close to meaningless. But you may already be using some kind of trading app or plug-in that customizes your connection to E*Trade, and there’s no question that, with the proliferation of gadgets and third-party Websites, more such customizing and control programs are on the way. Like other online investment outfits, E*Trade doesn’t want to restrict its customers’ interface and functionality options to its in-house offerings.

    The theme of brokerage platforms morphing into exchanges where 3rd party application developers can reach investors has been a common there here and on my other blog, New Rules of Investing.

    Starting in July 2008 (on New Rules of Investing) and continuing a year later (with E*Trade further blurs the line between full-service and DIY investing), I’ve been writing about this trend– no one else really has. I’ve even included a section on it in the last chapter, Future of Finance, in my new book, Tradestream your Way to Profits.

    Again, I have no problem riffing off my ideas.  That’s why I write: to engender some thinking and discussion.  Just link back.  Listening, Barron’s?

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  • Using technology to mimic guru investors (Future of Investing)

    Posted on August 5, 2010 at 12:55 pm UTC

    This post was originally included as part of an ebook that I published alongside the launch of my book, Tradestream, entitled “Tradestreaming and the Future of Investing”. The content was so good I wanted everyone to have access to it. :-)

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    Piggyback investing is about following the “right” people.  In a lot of ways following overall sentiment of an online community is exactly what you want to avoid. The simple premise is that “crowd sourcing” is only valuable when you are able to accurately define and isolate the right crowd.  Accepting this as essential first, then any application that then can overlay real-time information about the “right crowd’s” moves is valuable. Here are just a few applications that can benefit from real-time information gathering:

    • Manager selection:  The AlphaClone platform allows you to tap the collective intelligence of groups of managers that are either predefined by us or defined by the use.  Some of our groups are dynamic in that the list of managers that make up the group change ever quarter based on some criteria. Take our High Concentration fund group: it selects the 25 managers each quarter that have the highest disclosed market value spread over fifty positions or less.  I could see a dynamic group that is constructed of the 25 managers that have garnered the highest votes for inclusion amongst the AlphaClone user community or the 25 managers whose fund page has had the highest visitor traffic over the past 30/60/90 days.
    • Stock selection:  our platform uses quarterly public filings to select the holdings that make up clone portfolios.  A real-time overlay that precipitates intra quarter changes in portfolio weightings for securities in the clone would be really interesting.  Real-time sources could be intra quarter public filings from the manager or managers in a clone (13G/13D filings), real-time analyst consensus recommendations (especially upside and downside “surprises”), or real-time events (bankruptcy, M&A).
    • Strategy selection: our platform allows investors to create and backtest clones based on different “clone strategies” (Top Holdings, Best Ideas, Popularity in top 20) and customize clones by employing hedging options and rebalance options.  We consider that simply a starting point.  I can see our community providing feedback on new clone strategies they’d like to see as well as tips on implementing clones.

    I see the real time web as a new communications medium that definitely has relevance for investors and investment services but just like any new communications medium, how useful it will be will largely depend on how it is applied and by whom (i.e. yahoo stock message boards vs. twitter feed from “pro investor here”).

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    Mazin founded AlphaClone in 2008 with the simple purpose to empower the average investor by giving him intelligent, instant and transparent access to the world’s best fund managers.  Mazin was a 12-year veteran of technology-driven media businesses including roles at Time Warner and OpenTV.

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  • Investing at the intersection of technology and social media (The Future of Investing)

    Posted on August 4, 2010 at 1:00 pm UTC

    This post was originally included as part of an ebook that I published alongside the launch of my book, Tradestream, entitled “Tradestreaming and the Future of Investing”. The content was so good I wanted everyone to have access to it :-) .  This is a great one from thought-leader and investor, Roger Ehrenberg about the opportunities for new tech and startups at the crossroads of technology, social media and finance.

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    The real-time Internet is providing investors with actionable insights and information previously unimaginable. Technological innovation – distributed processing and massive storage through cloud computing – has played a significant role in this transformation. However, it is at the intersection of technology and social media where the greatest innovation has taken place.  Thought-leaders across all domains, including finance, investing, economics and trading, have increasingly been sharing their views on the Internet. And a new class of companies have emerged to harvest, index, curate and disseminate these valuable insights. But more importantly, these companies have facilitated conversations between thought-leaders and members of the community. And it is in this dialogue where the greatest value is created. These changes impact not only investors, but producers and consumers of media everywhere. Trusted perspectives are being turned into actionable insights in real-time, with the judge of quality being crowd-sourced. Is this story important or merely noise? Is this unusual options activity truly predictive of earnings out-performance or simply a statistical artifact? Is this analysts’ off-consensus iPad shipment estimates based upon better insights or a flawed understanding? Innovative companies have helped to identify high-value individuals to serve as catalysts for discussion, but trust, reputation and status must be earned by community leaders and members alike every day. And it is the judgment of community that will ultimately determine a person’s influence within the community. And this can only happen through today’s cutting-edge technology, innovations in how social media and online communities are built and curated and the increasing volume of high-quality content. When it comes to investing and the impact of technology and social media, what seemed like the future is accessible today.

    *—> Like what you see? Hey! Don’t forget to subscribe to the free Tradestreaming newsletter for updates, tips, and special offers

    Roger Ehrenberg (LinkedIn) is Managing Partner of IA Ventures, a seed-stage technology fund focused on “big data” tools and technologies. Mr. Ehrenberg has an array of investments across financial technology and social media including Stocktwits, Covestor, Selerity, bit.ly, Buddy Media, TweetDeck and TLISTS.

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About Tradestreaming

Tradestreaming is a community of investors learning directly from experts. I’m Zack Miller, investor, entrepreneur, and founder of Tradestreaming.com and I literally wrote the book on how to invest in the age of Facebook and Twitter. Tradestreaming is the resource I’ve created to help me become a better investor.  I believe it will help you … Continue Reading