Janus Henderson’s senior fixed income traders, led by Andy ‘Mungo’ Munro, discuss the psychology of trading, transferring experience and effective leadership.
How are your trading desks organised?
Andy Munro: Janus Henderson has offices in London and Denver, and a smaller office in Melbourne, which has one trader, who covers all asset types in fixed income. In London, we split trading by credit, which comes under Jason Recordon and we have macro trading under Adrian Hogarth, including EM, rates, FX and money markets.
US fixed income is run from Denver under Neal Rayner, split into credit, across investment grade (IG) and high yield (HY). In the US we also have securitised trading, reporting up through Neal and money markets reporting directly to me from Denver.
Why is IG and HY only split out in the US?
Andy Munro: In the US, HY and IG are more delineated than they are in Europe, and we find it works cleanly out there.
Neal Rayner: The high yield and leveraged markets are larger in the US than in Europe, both at US$1 trillion, which can make working each labour intensive, depending on activity like repricing and new issues.
Jason Recordon: By covering the whole capital stack from IG to high yield, even where a bond is moving either as a fallen angel or rising star, we trade it throughout its whole life.
How do you allocate resources such as skills and technology across the desks?
Andy Munro: We have specialist traders, but we retain the ability to back each other up in times of stress or when facing resource constraints. Having specialists allows us to be alpha accretive to our portfolio managers (PMs). We are not just an execution desk, we’re involved in the investment process and we generate ideas, suggest alternative paths and get into the weeds of the trade.
From a technology point of view, we are constantly evaluating our systems and the electronic capabilities that are new into the market, to make sure that we’ve got the best resources available to the team. Regarding skills, we have very bright young people on the desk, and they’ve really upped the depth of skill set. We’ve got them trading credit, rates and money markets. We feel they need a little bit of everything.
A couple of years back I took on a data scientist in exchange for having another trader, and that data scientist is now moving into a trading role, as he’s got more interested in the markets. Having that skill set on the desk means we can self-build tools that we want, and the PMs can rely on those for their market timing and colour, helping to guide them when they want to make strategy calls. Those team members with big data and visualisation skills are invaluable to us.
Neal Rayner: The reality is the newer people coming into trading have lived with higher levels of technology than we did when we were coming up through the ranks. They have programming skills, they learned Python, they’re very comfortable working with large amounts of data. Couple that with older traders who have experience of trading through cycles, understanding of different issuers and different counterparties – as one bank does not necessarily trade the same way as another bank – and it creates a very good ecosystem to improve trading. It is virtuous cycle.
Jason Recordon: A lot of the quants that we brought in can synthesise and manipulate data, but the interpreting still needs to be done by everyone on the desk.
Andy Munro: It is also incumbent on us to teach the generation that’s coming through that this is still a relationship business. That is incredibly important in what we do. The whole market is not electronic yet, and there is a need to partner with banks that supply liquidity because we need to be in the market every day. Teaching market etiquette, the ways to get things done, and how to push back on PMs when necessary.
Jason Recordon: There’s definitely a drive towards electronification, but it has its time and moments. Leveraged loans, and asset backed securities (ABS) are still not quite there, so they need different skills to be traded.
Adrian Hogarth: Electronic trading helps efficiency hugely, but you don’t need to separate electronic trading from relationships and voice trading. It all fits together to give you the best outcome. You can use electronic trading for bigger flows to be more efficient, but the strength of your relationship is ultimately what’s important to get you a better price and superior execution.
Neal Rayner: Nothing’s more satisfying than when you’re trading with a counterparty you have known for a long time, and they say, ‘What’s the right price and we’ll do it’.
What is your view of segmenting desks by high-touch and low-touch trading?
Andy Munro: We’re not an index or a passive house so we don’t have a lot of high volume, ‘exhaust fume’ trades. We’re an active manager, so most of our trades are fairly lumpy in size and take more handling. That said, we are fully engaged with MarketAxess Auto-X, and Tradeweb AiEX and Bloomberg’s Rule Builder, where we think the flow is right for us to use them. Our futures trading is split with a multi-asset trader who reports to me and the equity team, and we get a lot of our trades automated there. We are working with the equities team as we both get closer. They split trades into infinitesimally small pieces via algos, and are now looking to block trades up and get larger in size, to learn from fixed income regarding request for quotes (RFQs), while we are looking to do more electronically. It is a symbiotic relationship between the two teams.
As listed derivatives use increases in the fixed income space which team trades them?
Andy Munro: A credit index future would come to our fixed income desk, because we would be aligned with the strategy and the motivation for the fund manager to do the trade. That said it could potentially be traded by the equity team or the multi-asset derivatives trader. We were debating futurised markets recently and any market that’s got futures in it becomes a more robust, healthy market. While we’re supportive of the new futures, we’re not big takers of them yet, but as liquidity improves, they could replace some swaps activity, they’re easily scalable.
Adrian Hogarth: I think they’re excellent, they are well-designed, particularly on the EM credit future as well. It’s a far superior product to the credit index default swap for emerging markets (CDX EM) product. There is a much broader spectrum of ISINs covered so there is the potential for them to be used far more widely as liquidity builds.
How do you use data science within the trading process?
Andy Munro: We integrate the various runs, axes and prices that come into the desk. We mine a lot of liquidity and turnover volumes, we tell PMs whether their portfolios are potentially well bid or well offered at the moment, we are always presenting the most active bonds and these are data points we can show immediately. We’re heavily involved in transaction cost analysis (TCA), pre-trade and post trade, to help enrich the conversation between trading and the portfolio manager. We have enriched conversations through the data set we’ve got and we overlay that with the empirical data that we gather on our trading counterparts, such as hit ratios, miss ratios, how many times they’ve passed taking a trade. That information collectively tells us if going to ‘counterparty A’ is a wasted bullet and we should really go to ‘counterparty B’. That then helps us to target more automated trading. A counterparty at the top of the stack who is not delivering value is almost gathering free information.
Adrian Hogarth: Automated tools that vendors offer are only as good as the data they’re getting. They’re selecting a pool of dealers to use based on their information and if some banks provide less data, there are discrepancies between platforms. It is so important that the data is correct.
Jason Recordon: It’s also in our interactions with banks. We initially brought a data quant into the team to evaluate the type of business that we’re doing with the banks, but now we can show what they’ve hit, what they’ve missed, where they’ve covered, we can go into voice trades, electronic trades, portfolio trading and so it gives us a much better conversation to have with the banks. They love it internally because they can pinpoint who’s doing a good job for them and for us.
Is the overall the quality of data improving?
Andy Munro: Yes. The more data you get, the more comfort you have. Most of us feel we’ve done a good job intuitively for a long time, and now we see that the data is reinforcing what we’ve done.
From time-to-time it has also highlighted where we think we’ve been doing the right thing, but actually we should do something different. Pricing data coming through is getting more accurate, TCA is becoming more accurate, and it is only going to get better with the consolidated tapes in the UK and EU and algo pricing.
What is the management structure of the trading team?
Andy Munro: I’m a collaborative manager and I bring these guys into the conversation. I always try to act with integrity and have accountability and that’s an ethos that we spread across the whole team. It is expected that everybody in the team acts with integrity and is accountable for their actions. I clear blockages for them and supply them with resource if it’s within our power. These guys are the subject matter experts; I ask them what they are doing, but I never tell them how to trade, they’re the absolute experts in what they do. We run a pretty flat management structure. Anybody on the desk is able to challenge and discuss, and we have some fairly lively discussions. They can get quite passionate at times in a respectful manner; I think that’s a good thing and I think it’s something that we should encourage. It shows we care about what we’re doing.
The firm’s ethos is clients come first always, and we’re trying to ensure we get the best execution at all times for our clients. Whether we should be splitting a trade, who we should engage with, whether we should park a bank for a little while – these are genuine conversations and they can come from anywhere on the desk.
Jason Recordon: When any of us has a big trade, we always try to leverage everyone else’s experience and get ideas; whether you trade some algos or go non-comp, we have good discussions on the desk and some of them do get quite heated from time-to-time.
Adrian Hogarth: There’s no 100% procedure for any trade; depending on what’s going on in the market, you could do the same trade five different ways, so working out the best way given all the information and circumstances you’ve got is the goal.
Jason Recordon: If a trade comes down from a PM and they suggest that we should use a given protocol, we will challenge that if needed and set out the case for a different way to do it.
Andy Munro: One of the rules we have is that PMs cannot tell us how to execute. They can give us suggestions on who to engage with or how, but ultimately where and how we trade is the trader’s domain.
What’s your approach to quantifying broker performance and optimising it, given that always targeting best price over the short term may penalise dealers who give your clients better longer term liquidity?
Andy Munro: It doesn’t always have to be about the individual price on every single trade, it should be about best outcome. We are in partnership with the banks, we do need to make it work and we do need to come back to the market every day and every week. Hence, we need to act with integrity in the market. If we run people over on a daily basis, they’re not going to be there for us next week.
Neal Rayner: We sit in close proximity to the portfolio managers. We can’t completely separate trading from the PMs because you have to understand what their goal is and why. I can fill a PM’s ticket very quickly, but they may think their upside is only worth one point I’m not going to lift it at +0.50 just for the liquidity. We need to understand what their exit strategy is, what their goal is. If they think that this has got a very high internal rate of return (IRR) and they want to get it on relatively quickly, then maybe we do pay up for that liquidity, but we have to be conscious of the intention of the PMs in that investment.
Jason Recordon: Neal raises a great point in terms of the proximity we have with PMs and traders. We do sit incredibly close to each other and as a trader you develop a ‘dealer ear’ where you listen in on conversations that PMs are having, and when they mention some bonds, we can do some preparation so when the trade comes it, we are set up to handle it.
Andy Munro: We traded face-to-face in open outcry when I first started, then phones, and now it’s more electronic. You get more information trading on voice with somebody because you can tell how the person on the end of the phone is reacting. You find out whether he’s got three to one buyers to sellers, you don’t get that from an IB (Instant Bloomberg message) or a text message. That colour doesn’t come through and the stress in people’s voices doesn’t come through.
The three guys we have here are extremely experienced traders. They’ve got a good sense of when the market’s in trouble, when there are capitulation trades and when it’s gone too far. When it’s time to either step in or step away. That’s feeling the trade and being value add and accretive. Good traders have got that ability and they’re not just running a process or an execution task.
Jason Recordon: It’s the psychology of the whole trade. People can hide behind an IB chat, so we always encourage younger people when they join the desk to make more phone calls. You can hear if someone stutters, mumbles or falls over. You can hear what’s going on in the background, whether they’re busy or quiet in the business that they’re doing. On an enquiry, if you ask a difficult question on IB, it goes silent. If you’re on the phone to them, it can’t go silent. They need to fill that silence with something, and there you can really gain a lot of information from what’s actually going on, what the trader wants to do. Picking up the phone on bigger trades is still absolutely key.
Adrian Hogarth: We get more information by using the phone but it also helps sell-side traders. For example, if they see bigger or less liquid trades getting posted on a venue, you can pick up the phone you can explain exactly what’s going on, that gives them a level of comfort that they’re not going to get run over, and you get a couple of basis points better on your price, knowing how they feel when you present a trade to them.
How do you represent the trading teams internally and externally?
Andy Munro: We are the first point of contact with the street. We have to act with absolute integrity to the street. Whenever we pick up the phone or send a message externally, we are representing the firm. So we act in a way that’s professional and does nothing to harm the reputation of the firm. Internally, we have to represent ourselves to our PMs and need to make sure that we keep them happy and engaged. We are the balance between the street and the PMs, it’s incumbent on us to share information that we get both ways where we can and enrich both sides.
Adrian Hogarth: Internally we actively participate in investment meetings, so we are probably all on two meetings a day, whether that’s credit, macro, maybe more depending what’s going on where there’ll be a variety of other teams be that Risk or PMs, and traders are either running or just actively participating in those meetings.
Jason Recordon: We are also in due diligence meetings and client pitches, because the PMs and analysts consider us to be part of the process. So if they’re in meetings, we’re in there with them.
Adrian Hogarth: Five to ten years ago, clients didn’t ask many questions about the trading desk and TCA in an RFP process, that’s completely changed now.
Andy Munro: It’s a whole section now, we get an hour or two ourselves for a big pitch. Externally we are also present in the Investment Association, the Securities Industry and Financial Markets Association (SIFMA), Quorum 15 and major conferences.
Neal Rayner: We also attend a lot of events, in the US we are not in the financial centre so our traders travel out to meet the major banks, they’ll also come and visit us and we’ll coordinate to ensure that the traders and research analysts they’re bringing align with the right people internally, so everyone gets in front of the right people. We attend the Fixed Income Leaders Summit, and the Structured Finance Association conferences in Las Vegas and Miami, to represent with our partners on the sell side. There are occasions where we are brought in to talk to clients during due diligence meetings or if they had specific trading requests to get an understanding of how we can engage with the market on their behalf.
Andy Munro: Internally I sit on the credit committee and front office governance committees, and Jason sits on the liquidity working group.
What is your leadership style?
Andy Munro: Perhaps the team are best placed to answer that.
Jason Recordon: Mungo trusts us to get on. He gives us latitude to be able to get on with our jobs, knowing that if we have a problem, we will raise it upstream. We’re very open, if ever there’s a problem, we highlight it and we try and fix it because we just don’t want it happen again. We go through this iterative process to improve processes.
Neal Rayner: Mungo’s in a unique position having to deal with multiple personalities across multiple geographies and to Jason’s point about latitude, he gives you enough freedom to do the job in the manner you feel best suits the situation, he wants to give you the opportunity to succeed. If a situation is not working as anticipated he’s going step in and put you back on the right path, which is very helpful.
Although we’ve talked about skills, how does character affect trading, given the extent to which trading has changed with your careers?
Andy Munro: Everyone must bring a curious mindset to the desk. It is one of the most interesting jobs in the world. You learn something new every single day. If you don’t evolve, you’re a dinosaur. I’m acutely aware that I’ve been at Janus Henderson for 30 years and in the market for 40. I’m reaching the end of my career, and I know the people that are following me have that curious mindset and enthusiasm for the markets. That’s going to set people in the right direction.
Some of the skills that you need have evolved and some of that is leaving me behind, I’ll be frank. Every junior that comes in now has got Python and quant skills. They need to learn how to interpret the data, how to work a relationship, how to engage a market, and how to act in times of extreme stress. That’s where we earn our corn and we set ourselves apart from some of the others.
Jason Recordon: Our objective is to suggest ideas on how to improve the desk. Innovation is something that runs through the team and we’re all given a lot of creative flair to bring different things to the table. We speak to a lot of the vendors, we try and integrate the offerings that they have into our processes, and if there’s something that could meaningfully change what we’re doing then we’ll seriously consider them. We actively work with a lot of these vendors to help them improve their products because it ultimately will help us.
Andy Munro: Everyone is empowered to develop ideas on what we can build, and quite often it is the more junior team members that know how to use systems and data to realise that idea.
Jason Recordon: That is what keeps everyone interested. Everyone has a voice. We get along very well and can share ideas without fear of being shot down.
Andy Munro: We’ve got real longevity across the desk, and that speaks volumes. People enjoy working here they enjoy the ethos and the mindset. The culture at the firm is good.
How do you cross-pollinate ideas between asset classes?
Andy Munro: Myself and Hugh Spencer [global head of equity trading] have lots of meetings together because we’re involved in cross-desk projects. We’ve got a multi-asset derivatives trader who reports into both of us, and one of our traders recently moved from the fixed income desk to the equity desk. So we all know each other very well.
What are the biggest challenges facing best outcome/execution in fixed income trading?
Andy Munro: Gathering and aggregating the increased amount of data that’s coming in, then turning it into something that’s useful.
Jason Recordon: Fighting through all the stale composites, getting accurate data.
Andy Munro: Ensuring we are going to the street it in the optimal way by aggregating that data and then making a decision how to optimally proceed based on the PMs thesis.
How do you see market structure potentially being optimised for buy-side desks today?
Andy Munro: Globally we have to get primary markets electronified. It staggers me that we’ve not got there yet.
Jason Recordon: It is such a drain on resources, such a waste of everyone’s time. It’s totally inefficient.
Andy Munro: In Europe we’re looking forward to the centralised consolidated tape. Hopefully that will be value add and not ridiculously expensive. We hope there’ll be the same provider in Europe and the UK, which means we don’t need to pay again to get them reaggregated.
It will also be interesting to see if we could consider smaller minimum denominations for fixed income in Europe. I think that’s a hindrance to the market, personally.
Where do you see dealers adding the most value?
Andy Munro: it’s always the liquidity they can provide, in the names we care about, with research and colour.
Jason Recordon: Being partners through the cycles. You need to partner when times are good, because when times are bad, you will need them.
Adrian Hogarth: With electronic trading, it is a real dichotomy. Some banks see it as a real opportunity and are happy to play ball with vendors and clients, provide data and move it forward to help everyone. Some see it as a threat and don’t really want to play well, don’t want to provide their data and obstruct it as much as possible to reduce visibility on where the market may be. There’s a real split there. That’s when auto pricing tools have a problem. If 50% of the market are providing data, how can you judge if that tool is doing the best job?
Andy Munro: They can only play King Canute for so long.
What are your top operational issues for the next twelve months?
Andy Munro: We are looking at execution management systems (EMSs) because they can evolve more quickly in response to the evolving electronic landscape than the order management systems (OMSs), which tend to be far bigger, deeper tools, that take longer to pivot. If all they’re doing is rocking up a FIX connection and we’re dropping down messaging, then we think the EMSs have got a place, and we’re evaluating the now.
Jason Recordon: Because our OMS is quite advanced, we sometimes struggle to see the benefit of jumping to an EMS from the OMS that we’ve got.
Andy Munro: What we’ve seen over the last month or two is [EMSs] are evolving to offer more accretive capability to help us shape our decision making. They have more capabilities and there’s going to be more and more data coming at us, which they are better at aggregating than the OMSs are currently.
Andrew Munro is global head of fixed income trading at Janus Henderson Investors, a position he has held since 2006. Prior to this, Andrew was head of Henderson’s fixed income dealing desk from 2003. He joined Henderson in 1995 as head of international equity dealing. He has 40 years of financial industry experience.
Neal Rayner is head of US fixed income trading at Janus Henderson Investors, a position he has held since 2017 when he joined Janus. Prior to this, Neal was Head of Fixed Income Trading – US at Aberdeen Asset Management from 2009 and served concurrently as a high-yield investment manager and trader from 2005. He has 31 years of financial industry experience.
Jason Recordon is head of credit trading, Europe at Janus Henderson Investors, a position he has held since the 2017. Prior to this, he was head of credit trading at Henderson Global Investors from 2015. He joined Henderson as trade support for FX and money markets in 2002. He has 23 years of financial industry experience.
Adrian Hogarth is a senior global macro trader at Janus Henderson Investors, a position he has held since 2008. Before joining Henderson, Adrian was a vice president at Merrill Lynch from 2005 and a vice president at Morgan Stanley from 1998, both tenures in each firm’s fixed income division. He has 27 years of financial industry experience.
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