6 traits of top-notch investment portfolio management
Net-interest margins remain near 15-year lows.
Can credit unions manage their liquidity and interest rate risk and still improve their earnings?
“Yes, but there are some trade-offs,” says Ryan Hayhurst, managing director of The Baker Group.
He addressed the CUNA Economics & Investments Conference Tuesday in Las Vegas.
Net-interest margins remain near 15-year lows, Hayhurst says. He advises using investments to boost the bottom line.
Consider these six characteristics of high-performing investment portfolio management:
- Use the investment portfolio to fight margin erosion. “The bond portfolio is the only place we can increase margin without hurting the membership,” Hayhurst says.
- Define, measure, and manage. Define your portfolio objectives and risk tolerance, measure your risk exposure, and manage your risk. “Actively manage the portfolio in the context of your balance sheet,” he says.
- Develop a written investment strategy. “Build a portfolio,” Hayhurst says, “don’t be sold one. Be proactive, not reactive, with a disciplined investment strategy.”
- Diversify the portfolio across sectors and within sectors. Each sector has its pros and cons. Diversification protects against a range of interest-rate scenarios, he says.
- Minimize cash and certificates of deposits (CDs) in favor of bonds. “High-performance portfolios tend to own less cash and CDs, and more mortgage-backed securities and CMOs [collateralized mortgage obligations],” he says.
- Build a portfolio of stable, predictable cash flow. “Steady, consistent cash flow is the best natural hedge against rising rates,” Hayhurst says.
In short: “Stay diversified, focus on mortgages, and find the best relative value.”