Assets Mangers Stay Focused09.01.2011
o stay competitive in today’s environment, asset managers “stick with what they know.”
Competition is fierce for asset managers. Heightened volatility in today’s markets paired with a lagging economy may have blipped steady returns.
Despite the current investing climate, the way forward is to “focus on knowing what we do well- and then, not trying to extend that clear focus,” said Scott Kubie, chief strategist for CLS Investments, a Nebraska-based asset manager with 7 billion under management.
For CLS, that “clear focus” is strengthening its effort on “risk budgeting”, the firm’s premier methodology on safeguarding and enhancing returns for clients.
“We took the concept of risk budgeting from pension plans, and it’s a lot more robust than a stock/bond ratio, which may not be effective,” according to Kubie, who cited that treasuries and high yield bonds have different risks, as well as staple and emerging market equities.
Although each client’s risk needs differ, Kubie told Markets Media that risk management entails active overweighing, under weighing and proper allocation when they’re uncertainties arise on a certain asset class; such as Latin American equities, or when the firm foresees great opportunities in China.
“Simple diversification and investing in non-correlated assets can turn risky themselves because correlations can change quickly,” Kubie noted. “We take a top-down, more quantitative and statistical approach to managing risk.”
Beta (relative to the equity market), standard deviation, and downside capture ration are among CLS’s top quantitative measures of risk.
The firm does not implement risk management strategies that require derivatives overlay programs.
Second to risk budgeting, Kubie stated that CLS continues to add value for clients via exchange-traded products, and separate accounts. Since the firm’s launch in 1989, its client base was primarily financial advisors, and has now has spanned a broader spectrum, including sub-advised funds with Prudential Investments.