Understanding the investment process from a BBVA Compass professional, Part 2
Anne-Joëlle Viguier-Galley is BBVA Compass’ Chief of Equity and Alternative Investments for the bank’s Global Wealth team. She also doubles as the Chief Investment Strategist for BBVA Wealth Solutions, Inc., the bank’s investment adviser affiliate.
As such, Viguier-Galley has a wealth of knowledge around the ins-and-outs of the investment process, and recently sat down to answer a handful of questions she frequently gets from clients and prospects looking to invest their hard-earned money.
Part 1 of her interview can be found here, where she outlines her philosophy on investing.
Below is the second part from her Q&A with the BBVA Compass External Communications team, revolving around risk management, market analysis, and a specialized set of products.
1) How do you manage the BBVA Wealth Solutions Smartpath® suite of products?
Both the Diversified and ETFs/Index Funds suites of models are managed based on risk and risk is measured as the three-year standard deviation. As the economic cycle ages and we approach the peak, the standard deviation is lowered towards a minimum target*.
2) Where is your risk at present?
We are towards the lower bound (minimum) of our range.
3) How do you know when you should start decreasing risk?
You never know for sure, as cycles vary in length and they rarely die of old age. The present cycle is for sure one of the longest in history: a very tight labor market with wage metrics increasing, albeit at a slow pace, together with materials and input costs increasing may eventually generate some inflation. When inflation rises, risk increases because the Fed shifts to a more restrictive monetary policy. Trade and tariff policies uncertainty may also impact businesses going forward and this represents a downside risk to the growth outlook. High levels of debt in the system are also risks. Some could argue that I moved too early towards the lower part of our “risk band”, yet, I am, once again following our investment process.
4) What if we don’t agree with your views of the economy and/or your process?
Fair question! BWS maintains an open platform that offers a variety of different solutions. Talk with your
financial advisor about options.
5) How did your portfolios fare in the recent downward market adjustment?
The period from beginning of February 2018 to end of March 2018 was characterized by a return to high volatility and uncertainty in the markets (after years of abnormal tranquility) and, in this particular period, the Diversified and ETFs/Index Funds composites did “less bad” than some typical blends of equities and bonds. To be fair, the portfolios as they are managed today have not yet undergone a longer stress period like that of 2007-2008.
6) What happens when markets are going up very strongly like we have seen in the past few years?
There is no “free lunch” unfortunately and our BWS Smartpath® portfolios will lag and have lagged in strong market upswings.
7) Will your portfolios always protect on the downside as seen in the recent market volatility and uncertainty?
Unfortunately, no. Just recently an intense, one-day move down in equities was accompanied with a dramatic drop in yields (when yields drop, bond prices go up). Although our equity portion of the portfolios did not drop as much as various well-known indices, our bond portion did not do as well due to our low duration (we are still expecting increases in interest rates and thus remain short duration). Recently, the declines in Emerging Markets and the strong dollar have also worked against us. There are so many moving pieces in the markets that some days everything aligns to make you remember how important it is to be humble when it comes to investing and how imperative it is to have a solid process to help you stay the course!
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Important Disclosures: The information contained herein is provided for general informational and illustrative purposes only and should not be considered investment advice. Neither BBVA Wealth Solutions, Inc. nor any of its affiliates are providing tax, legal or accounting advice. Please consult your individual tax, legal or accounting professional for advice regarding your particular circumstances.
Advisory services provided by BBVA Wealth Solutions, Inc., a registered investment advisor and affiliate of Compass Bank. Securities offered through BBVA Compass Investment Solutions, a division of BBVA Securities Inc., member FINRA and SPIC and an affiliate of Compass Bank and BBVA Wealth Solutions, Inc.
Securities and investment products:
- Are NOT FDIC Insured
- Are NOT deposits
- Are NOT bank guaranteed
- Are NOT insured by any federal government agency
- May LOSE value
BBVA Compass is a trade name for Compass Bank.
*For a Smartpath® Diversified moderate growth portfolio for example, whose mid-point would be 50% equity/50% bonds, the minimum standard deviation would be that of a blended portfolio of 60% bonds, 10% cash and 30% equities, while the maximum would be that of a blended portfolio of 40% bonds and 60% equities. As of March 31, 2018, the annualized 3-year standard deviation of the former was 4.23% while the maximum was 7.13%. Standard deviation is a measure of dispersement in statistics. “Dispersement” tells you how much your data is spread out. Specifically, it shows you how much your data (in this case returns) is spread out around the mean or average.