(Chicago) The more the economy continues volatile returns, the more investors are concerned about their investment portfolio. As investors are still alarmed from the Great Recession, Portfolio Advisors are seeking ways to overcome the obstacles that are presented by the apprehensions of their clients. Northern Trust Asset Management hosted a media luncheon to inform participants of three major risks that can influence the economy and mitigate their portfolio.
As an overture to the annual Morning Star Conference held at the McCormick Place in Chicago, Northern Trust Asset Management team gathered a panel of experts to expound on the topic, ‘Embracing & Understanding Risk.’
The Global Conference Center housed a media luncheon for the press to release information discussed by a panel of experts that included, Marie Dzanis, Matt Peron, Chris Huemmer, Sabrina Bailey and Avantika Saisekar. Prior to the event, Northern Trust Asset Management employees mingled with the press to break the ice and answer any questions related to the topic. Bob P. Browne, CFA opened the luncheon with remarks and thanked everyone for attending. “There is no such thing as a bad risk. There is only bad premium,” quoted Bob P. Browne. Mr. Browne’s goal was for the entire room to walk away from the luncheon with a better understanding of risk.
How does one think about risk? How does one feel about it? Risks are normally thought about at the individual security levels. However, those types of risks can easily be diversified. The best practice is to address the affects of the entire portfolio.
“We should be embracing risk, but we should be embracing the right risk at the right time,” stated Sabrina Bailey.
An investor or portfolio manager can actually look at the factor risk in the portfolio and deliver portfolios by targeting the risks directly. One of the best strategies to managing risk is facing the risk directly and acting intentional. “There are very different risk factors in the equity market,” stated Matt Peron.
Investors are advised to look at the active returns over the years. Contrary to belief, the returns are not derived from the choice of portfolio manager or stocks. The returns are coming from the risk factors. Once that is understood portfolio managers will begin to construct portfolios with better returns.
What is the goal of using a factor based approach to address risk? To be clear, participants are not rational economic agents when it comes to investing. One of the key risks plan sponsors face is how to design a program that help individuals reach their retirement goals. Many researchers have noticed a buy high, sell low investors’ approach. The factor based approach, target date funds, help investors and plan sponsored structure a portfolio to take the right risk. This helps an investor address the right risk at the right time.
“Reputational risk is a risk to a firm’s reputation that could be caused by a variety of different factors,” stated Avantika Saisekar. Environmental, Social, Goverance (ESG) is a way to mitigate reputational risk. Typically, companies with high ESG scores are not the ones involved in controversy.
About Fact Based Investing
While holding a mix of stocks, bonds and cash results in a portfolio that holds a diverse array of asset classes, when all of these asset classes move in the same direction, the benefits of diversification are lost. Rather than focus on diversification at the asset-class level, the financial services community is developing strategies that focus more on specific securities within and across asset classes.
About Northern Trust Asset Management
For more than a century, Northern Trust has worked hard building our legacy of outstanding service, expertise and integrity. From a Chicago-based bank founded in 1889, they now have more than 20 international locations and 16,500 employees globally. They serve the world’s most-sophisticated clients – from sovereign wealth funds and the wealthiest individuals and families, to the most-successful hedge funds and corporate brands.