This meeting Investment Club had a joint meeting with WWU’s FMA club. This meeting, Thomas Boyd, a Portfolio Manager at Russell Investments, came to speak to both clubs about his work at Russell and how he got there.
Mr. Boyd described his path of acquiring a Degree in Economics and working at a variety of financial related jobs before Russell Investments. At Russell Investments, Mr. Boyd works with Pensions, Endowments, and Foundations to manage overlays, risk exposures and customize other implementation strategies. Through these different types of portfolios, Mr. Boyd works with Derivatives, most commonly S&P 500 Futures and Treasury Futures.
So, what are derivatives?
A derivative is a contract between 2 parties that’s value is derived from the value of another asset (underlying asset). These underlying assets could be Stocks, Bonds, Currencies, Commodities, Interest rates, or Indices like the S&P 500. Derivatives aren’t tangible financial assets with intrinsic value. Their value is derived from the value of their reference instrument as specified by the terms of the contract or obligation. Derivatives allow institutions to move around money and pay less upfront cash while still getting exposure.
Mr. Boyd talked about the 3 types of traders in the derivatives market. The first type is Hedgers, these are investors or companies that face a particular risk and use derivatives to minimize risk. Speculators, which are investors that enter markets in order to make a profit. Lastly, Arbitrageurs, which are investors that enter into multiple transactions to take advantage of discrepancies in prices in markets.
Hedging downside versus selling: When asked the reason for hedging downside versus selling, Mr. Boyd said that ultimately, hedging takes a lot less time than selling and it’s a lot less moving parts than selling the underlying assets.