Managing risk is one of the most important portfolio management objectives. Risk is the possibility that an outcome will differ from what is expected or hoped for.
“Investment risk is like the wind on top of a mountain,” says Caleb Silsby, chief portfolio manager at Whittier Trust Company. “It’s unpredictable and often cannot be seen or even anticipated. The more calm the environment is around you, the less prepared you are likely to be when it hits.”
But with the right guidance and preparation, risk can be managed and planned for in a way that allows investment objectives to be met regardless of the conditions — to be understood rather than feared.
Whittier Trust offers a calculated approach to risk management that has served clients well through many market cycles. “We emphasize three interconnected mechanisms,” Silsby says, “And this trifecta has proven time and time again to generate strong returns for our clients.”
Recognizing the risk continuum
Most clients want more return than the bond market but less risk than the stock market. To achieve this outcome, Whittier Trust starts with an investment philosophy centered around owning quality companies.
“With high-quality companies, you can own more of a higher-returning asset class in your portfolio than you would with riskier, lower-quality equities,” explains Silsby. “Whittier’s research team analyzes the history, management, and financials of these companies. When we refer to a stock as high-quality, it means that the company has a clean balance sheet, strong management team, lasting competitive advantage, and strong returns on capital deployed.”
Minding the bear
Correlation is a statistical tool for portfolio managers that indicates the degree to which securities move in relation to one another. Whittier Trust believes that in bear markets, correlations move to one (a perfect positive correlation), and the dollar tends to strengthen.
“We are also mindful of currency impacts that often catch unwitting investors by surprise during bear markets,” says Silsby.
Whittier Trust has managed money through multiple market cycles and has seen the commonalities of bear markets. We employ thoughtful portfolio construction that anticipates a risk-off environment where risk assets will tend to move in synchrony. We set up portfolios with the expected market shifts in mind, which allows us to plan for the unexpected.
During the 2022 bear market, the Whittier investment team anticipated the Federal Reserve’s aggressive interest rate hikes in response to inflation and maintained a constructive outlook despite widespread concerns and panic about a deep recession. Our disciplined approach emphasized a balanced perspective, suggesting that fears of stubborn inflation and severe economic downturns might be overstated.
In 2023, amidst significant challenges such as regional bank collapses, Whittier Trust assessed the broader financial system’s resilience, predicting these crises would be “bumps in the road” rather than catastrophic events. This perspective proved revelatory, as markets rebounded, with the S&P 500 delivering a 26.3% total return for 2023.
By aligning our investment strategies with key economic indicators and maintaining a steady hand, we have reinforced our reputation as a reliable partner in wealth management during challenging market cycles.
Playing the long game
Whittier’s formula for managing risk is focused on long-term investments. The market generates returns much more often than it doesn’t, making long-term investments one of the best ways to grow wealth.
Silsby advises: “If you can be a long-term, patient investor who avoids being a forced seller, then the true risk to manage around is permanent loss of capital. Such losses commonly arise through forced selling, uncontrolled equity dilution, or too much leverage.”
Forward-thinking investors can ride out market volatility and capitalize on compounding returns, dividend growth, and capital appreciation.
As the oldest multifamily office headquartered on the West Coast, Whittier Trust Company has refined our approach to managing short- and long-term risks over nearly four decades. As in everything we do, our guiding purpose as fiduciaries is to understand and meet clients’ overall goals and best interests, while working to ensure the resilience of their portfolios.
With the long term in mind, we can help protect clients, their families, and their legacies through uncertain economic trends and market fluctuations with tailored investment plans and our exceptional commitment to personal service.
For more information on Whittier Trust’s approach and strategies for investment and risk management, start a conversation with a Whittier Trust advisor today by visiting whittiertrust.com.
This content was provided by Whittier Trust. Kiplinger is not affiliated with and does not endorse the company or products mentioned above.