INVESTMENT STRATEGIES
WCB’s commitment to actively managed customized portfolios has been in place for over twenty years, whereby the firm has managed fixed income and equity portfolios based on disciplined investment strategies that have proven the test of time and often tumultuous market conditions. While both the fixed income and equity strategies are disciplined, they are also sufficiently flexible to permit the investment teams to employ opportunistic management and trading tactics. These strategies are based on detailed quantitative and qualitative analysis of each publicly traded company that is an investment candidate, technical considerations, a strong “sell discipline”, economic fundamentals, foreign and domestic influences, rapidly changing market conditions, and long term global demographics.
The quality of the firm’s internal proprietary research, along with selective research from various independent external sources around the world, and the employment of risk management techniques, have been key variables in the production of long term investment results that have been very pleasing to clients. In addition, this has resulted in several long-term client relationships that date back to the inception of the firm in 1984 and the management of multiple portfolios.
Fixed Income Management
WCB's primary goal in managing fixed income portfolios is to achieve or exceed investment and client service expectations. One distinguishing characteristic of the firm, and an important strategy in meeting this goal, involves the initial construction and on-going active management of customized portfolios. The portfolios are constructed and managed to comply with individual client guidelines, as opposed to using predetermined master portfolio methodologies, approved lists, or commingled funds. At WCB, portfolios are managed based on specific client directives in order to meet their particular requirements for liquidity, risk tolerance, credit quality and a host of other variables. In addition, at WCB the professional management team makes a special effort to know each client and understand their needs.
The principal objective in fixed income management at WCB is to preserve and enhance the purchasing power of the assets. This process is driven by the philosophy that the firm must protect the client's capital and make it grow at a rate that exceeds the rate of inflation as well as an applicable benchmark, while staying within the stated guidelines. The approach is a blend of top-down and sector/security-specific analysis which is thorough and balanced. WCB utilizes elements from fundamental, quantitative and technical analysis in order to maximize returns within a client-specified duration band while minimizing market, sector and credit risk. All portfolios are managed according to a disciplined investment strategy that employs three primary steps (Yield Enhancement, Valuation Analysis, and Maturity and Risk Management) to tactically position portfolios relative to the yield curve, and to over-weight selected market sectors such as high quality corporate bonds, mortgage backed securities, assets backed notes and, if client directed, to a much lesser degree private placements (144-A’s) and high yield debt.
Treasury Inflation Protected Securities (“TIPS”) Management
WCB’S primary goal in managing TIPS portfolios is to provide clients with superior investment results when inflation is rising. Such portfolios generally have a low correlation with not only traditional bonds but also stocks while offering liquidity not found in traditional inflation hedges. At WCB, the portfolio managers construct and manage a customized portfolio of TIPS for each client based on their investment guidelines.
WCB has been active in the management of TIPS since July 1, 2001 (after having studied the nature of these securities since they were introduced by the U.S. Treasury in 1997) as a means to protect investors from the effects of inflation. Using the Consumer Price Index (CPI) as a guide, the value of the principal is adjusted to reflect the effects of inflation. A fixed interest rate is paid semi-annually on the adjusted amount. At maturity, if inflation has increased the value of the principal, the investor receives the higher value. If deflation has decreased the value, the investor receives the original face amount.
These U.S. government-guaranteed instruments are particularly beneficial to institutions that require a high overall quality while seeking broader portfolio diversification among their longer duration financial assets than is provided by other fixed income securities and stocks, both of which are impacted by inflation. TIPS are also an attractive tool for investors seeking potentially higher returns on their government-guaranteed fixed income portfolios during periods of historically low yields. The addition of TIPS to a standard fixed income asset allocation of governments, corporates, and mortgages can simultaneously result in reduced volatility risk and increased returns. TIPS provide a low correlation with not only traditional bonds but also stocks while offering liquidity not found in traditional inflation hedges.
Equity Management
WCB’s goal is to achieve or exceed expectations by employing a unique methodology combining both quantitative and qualitative techniques to construct customized equity portfolios to meet specific client needs. Over the years, the firm has distinguished itself primarily in the management of three equity products or strategies: “Large Cap Growth”, “Large Cap Core", and “Mid-Cap Growth”.
WCB’s equity portfolio management was originally based on Mathematical Value Theory “MVT”, a scientific framework used to identify value mathematically rather than subjectively, thereby enabling one to develop portfolios based on their inherent value and characteristics. WCB’s approach has evolved to allow the equity portfolio management team to go beyond MVT in the company analysis. WCB’s methodology is highly disciplined focusing on WCB’s proprietary set of critical key factors from the income statement and balance sheet going back over the past twenty quarters. This allows the equity portfolio management team to analyze the trends within the operations of a company and thus order and rank the stocks of companies from various indexes, sectors or market cap segments.
The companies in the selected universe (which is often an index) are ranked according to WCB’s proprietary analytics. The equity portfolio management team then employs qualitative skills, tools, and proprietary trading techniques to construct the final stock portfolio for each client based on the index or population of stocks (customized benchmark) selected by the client. The equity portfolio management team typically will initiate each position in equal weighting and rebalance each position at least twice per year.
In addition WCB believes the equity markets have shifted fundamentally from the secular bull market of the eighties and nineties to a range bound market expected to continue for an extended period. In order to respond to this market shift, several years ago the equity portfolio management team began developing and testing tools that would address the inherent market risks associated with range bound markets as opposed to secular bull markets. The result of that multi-year study is what the equity portfolio management team refers to as Protocol Trading.
The essence of Protocol Trading involves identifying better trade location for initial position entry, stop loss management to allow exiting positions if the market moves against a position or a portfolio, and dynamic trading strategies that allow better management of market risk within the portfolios. The Protocol Trading tools are applied to all portfolios now as a risk management overlay. In addition WCB is rolling out index based products that will take advantage of volatile and/or declining markets by utilizing Protocol Trading to drive a long and short strategy. This strategy will initially be applied to the broad market through highly liquid index ETFs and the highly liquid S&P Sector Spyders.