Prediction: High Frequency Trading Fund for Retail Investors
- Joshua M Brown
- July 7th, 2010
I rarely make predictions here, but when I do, they are always wrong.
This is probably because I only choose to predict outlandish things. The value of my predictive posts is not necessarily in their outcome. In contradistinction, it is in my choice of topics that enlightenment may be found, especially when the predictions don't pan out.
Or not. I just sounded exactly like a college professor I once chose not to pay attention to.
Anyway, for my next feat of clairvoyance, I'll go out on a limb and tell you that by year's end, expect to see a retail product that purports to offer High Frequency Trading/ Black Box/ Algorithmic-driven strategy and returns to investors. I know I predicted the launch of a Cloud Computing ETF this past spring (didn't happen), but like Jay-Z said, "I'm on to the next one".
How would this sort of thing work? I'd say either as an ETF or more likely as a Closed-End Fund. I think these two options would be more realistic than a traditional (or open-end) mutual fund because you'd probably need a finite number of shares.
Let's say they attempt this as a Closed-End Fund. The CEF would come public with sales literature effusively praising the success rate and growth of high frequency trading in general.
As for "fund objectives", I'm guessing they would strive to provide both "current income and capital appreciation" by offering a quarterly dividend to disburse profits from trading activity. The capital appreciation part never really pans out when you buy a closed-end on the IPO. 101 out of 100 of these things open flat and then sell off within 60 days as the "penalty bid" expires, but they all pretend like that won't happen. But I digress.
Anyway, the first-ever High Frequency Trading Investor Participation Fund or whatever they call it will be announced sometime in the fall with a massive wholesaler push across the country. Brokers will tell their clients that this is their chance to "trade" like the bastards that have been stealing from them every day on the stock exchanges.
It will raise mucho dinero and then act like garbage, we are talking about a closed-end fund IPO after all!
Anyway, maybe this prediction pans out. If so, we'll see which investment manager has the guts to put it together and market it. If this post actually spawns the idea, then I want a royalty - as long as it's not paid to me in shares of the new fund.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.