The outs and ins of an Order List

This is the sixth in a series of articles on Unpacking the Investment Process, which provide clarity about various aspects of the investment process of a professional investor. Now we profile the Order List.

An Order List is the output of the Construction Phase of an ACE Investment Process, and a key input to the Execution Phase.

ACE Investment Process
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Order List

The output of the Construction Phase is an Order List.

[definition] An Order List is a list of orders to be executed

This is often referred to as a Trade List, although we think this term is less accurate than Order List.

A Simple Order List

An Order List can be quite simple, involving just one order:

Buy 500,000 shares in PRU

Let’s dissect this. The above example has one order and the following four fields, which is the minimum.

  • Order Direction, in this case Buy
  • Order Volume, in this case 500,000
  • Instrument Type, in this case shares would mean Ordinary Shares, although this is often implied, rather than explicitly stated
  • Security Code, in this case PRU

Note that this order could be verbal, rather than written, although this is not recommended.

An Order List can include many orders and any number of additional fields. Other fields can include:

  • Order Date, such as 16-Sep-2019
  • Security Identifier, such as ISIN, SEDOL, CUSIP, FIGI and RIC
  • Asset Class, such as Equities
  • Country, such as UK
  • Listing Exchange, such as London Stock Exchange (LSE)
  • Security Name, such as Prudential plc
  • Execution Horizon, such as today
  • Price Limit, such as 1510 pence or £15.10, or no price limit
  • Referral Price, such as 1530 pence or £15.30, to refer any unfilled order back to the Portfolio Manager if it this price is reached
  • Order Instruction, such as Happy to be patient, which lets the Dealer know the execution expectations of the Portfolio Manager
  • Portfolio Id, such as FUD01, which will be an internal identifier for a specific portfolio

Finally, there are compelling reasons to also capture additional information about your Order List to help with compliance, data capture and subsequent execution analysis. This is very helpful should you wish to continually improve your investment process. Other fields can include:

  • Order DateTime, such as 16-Sep-2019 14:07:36
  • Order TimeZone, such as BST
  • Order DateTime UTC, such as 16-Sep-2019 13:07:36
  • Order Reason, such as weighting increased as positive half-year operating profits suggest growth is on track to exceed full-year expectations, driven mainly by its Asian business
  • Forecast Daily Volume, such as 5.3m shares
  • Days Turnover, such as 9.4%, being 500k Order Volume divided by 5.3m Forecast Daily Volume
  • Order Arrival Price, such as 1488 pence or £14.88
  • Expected Market Impact, such as 0.37%
  • Expected Fill Price, such as 1493.51 pence or £14.9351, being 1488 x 1.0037
  • Execution Benchmark Price, which is usually the Expected Fill Price
  • Portfolio Manager, such as Aelwyn Burrowes
  • Dealer, such as Davina Langui

Order Data Capture

Most Funds Management Firms have systems that capture and store data related to Trades and Holdings, possibly in different systems.

Often, Order Data is not captured in a consistent way. Doing so will help improve the insights that can be gained from:

  • Execution Analysis, as Order Data is needed to determine Opportunity Cost, which can be a significant drain on portfolio performance
  • Execution Value Added, to compare Actual Fill Prices with Execution Benchmark Prices for each order, and how that looks over time at the aggregated portfolio level
  • Behavioural Analysis, in particular if the reasons a Portfolio Manager placed each order is captured
  • Investment Process Attribution, whereby each of these above analyses can contribute to a full understanding the drivers of performance across the Investment Process

Generating an Order List

Earlier we noted that an Order List is the output of the Construction Phase. Let’s examine this some more, starting with some definitions.

[definition] An Order List is derived from the difference in holdings between the Target Portfolio and the Legacy Portfolio.

[definition] The Target Portfolio is the portfolio of Assets you want to own.

[definition] The Legacy Portfolio is the portfolio of Assets you currently own.

Direct Approach

To arrive at the Order List, we need to know the holdings in a Legacy Portfolio and to determine the holdings in a Target Portfolio.

In many cases, this information is sufficient as the Order List is exactly the difference in holdings between the Target Portfolio and Legacy Portfolio.

Our example illustrates a small equities portfolio, with holdings being the number of shares in different stocks, as shown below.

Generating an Order List

In this example, the Order List is simply the difference in holdings between the Target Portfolio and the Legacy Portfolio. Thus, the brief instructions for the Order List will be to:

Sell 5,000 shares in stock B

Sell 4,000 shares in stock C

Buy 1,500 shares in stock D

Buy 10,000 shares in stock E

Proportional Approach

In the Direct Approach, the Order List was simply the difference in holdings between the Target Portfolio and the Legacy Portfolio.

However, some Portfolio Managers prefer to treat the Target Portfolio as a destination, and regard their portfolio as being on a journey towards this destination.

A Proportional Approach is based on setting an Implementation Rate, between 100% and 0%, to specify the proportion of the Order List to be executed.

We illustrate our previous small equities portfolio, now with a 75% Implementation Rate.

Generating an Order List with a 75% Implementation Rate

In this example, the Order List is now 75% of the Holdings Difference between the Target Portfolio and the Legacy Portfolio. Thus, the brief instructions for the Order List will now be to:

Sell 3,750 shares in stock B

Sell 3,000 shares in stock C

Buy 1,125 shares in stock D

Buy 7,500 shares in stock E

Finally, it is worth noting that the Direct Approach is the same as the Proportional Approach with a 100% Implementation Rate.

Transaction Costs

Transaction Costs are another important consideration when generating an Order List.

The two different aspects of Transaction Costs are:

  • Monetary Transaction Costs, such as commission, taxes and custody fees
  • Pricing Transaction Costs, such as bid-ask spread and market impact

These different costs affect the Order List in different ways.

Monetary Transaction Costs would have been considered when determining an appropriate Implementation Rate.

Pricing Transaction Costs are more complex, and will be left for discussion in later articles.

Execution Phase

The Order List is an input to the Execution Phase, which we will discuss in our next article.


The Order List is the overlap between the Construction Phase and the Execution Phase.

Thus it will involve those people who have contributed to each phase.

  • Construction Phase is the domain of the Portfolio Manager, and may also involve a Quantitative Analyst or a Risk Manager
  • Execution Phase is the domain of the dealing desk, which generally involves one or more Buy-side Dealers

Appendix: Unpacking the Investment Process

Earlier articles in our series on the Unpacking the Investment Process follow.

  1. Definitions are the Tools of Clarity – note that the definition of any Capitalised term can be found in our Glossary
  2. Articulating an Investment Process
  3. Assessment Phase of an Investment Process
  4. Preparing for Portfolio Construction
  5. Approaches to Portfolio Construction

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