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Enhance CUs investment portfolio--Online Discovery
MADISON, Wis. (10/7/11)--Credit unions should set aside personal investment biases and change their investment style to use all investment tools allowed by their charters and investment policies to build a solid investment portfolio, credit union leaders at CUNA Mutual Group’s second annual, daylong Online Discovery Conference were told.
Click to view larger image MEMBERS Capital Advisors’ Jeremy Whitish, left, senior analyst-investment risk, and Ed Meier, director and senior fixed-income portfolio manager, spoke at CUNA Mutual Group’s Online Discovery Conference Tuesday. (Photo provided by CUNA Mutual Group)
Online Discovery is CUNA Mutual Group’s Web-based equivalent of a face-to-face conference. The free event attracted an international audience of more than 1,800 credit union and league staff. Ed Meier, director and senior fixed-income portfolio manager, and Jeremy Whitish, senior analyst-investment risk, both with MEMBERS Capital Advisors, gave attendees a history lesson to understand the change in investment strategy over the years. “Many of us have personal investment biases that need to be justified in today’s economic environment,” Meier said. “For example, in the early 1990s many investors swore off investing in CMOs (collateralized mortgage obligations). While that may have made sense at the time, it doesn’t today. CMOs are typically underutilized,” Meier added. Today, investors must consider all of their options and quantify their risks. “You have to ask yourself the question: ‘How does this optimize my credit union’s portfolio?’ If it doesn’t, then move on,” Meier said. This can be a challenge, especially for investors with a conservative investment style, but the gain to the credit union’s bottom-line can be substantial. Meier and Whitish urged credit union leaders to consider their credit union’s funding needs, asset liability management (ALM) model output and economic outlook before ruling out a particular type of investment. “Just because an executive investment manager doesn’t like a particular investment doesn’t mean it isn’t a good investment for the credit union,” Whitish said. Credit union leaders need to think about their investment strategy differently today than they did 20 years ago. Most portfolios are excessively short in duration, Meier said. Credit unions must build in cornerstone securities, which have a potential for a higher yield and longer duration but maintain top-tier quality. “It’s critical for investors to understand their credit union’s ALM model because if you don’t have loans on your books, then you must have investments that match or reach longer term than your liability stream,” Meier said. “We propose having a core group of cornerstone investments in your portfolio--no matter if it’s good times or bad times, rising rates or lower rates--because it acts as a hedge that you can rely on despite the times or rates,” Meier added. To achieve a balanced approach to investing, credit union leaders should reduce their liquidity and invest in slightly longer-term securities to protect against economic uncertainties and adopt a flexible investment style that limits personal investment biases, said Meier and Whitish. “The best way to build a strong investment portfolio is to use all of the investment tools your credit union’s charter and investment policy allow,” Whitish said. “If you don’t, you will continue to struggle to build a solid investment portfolio for your credit union.”
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