Investment manager aims to lower risk
Sunday, November 22, 2009
As long and strange of a trip the past dozen years have been for investors, it's been equally long and strange for Mt. Lebanon investment manager Chris Wiles.
A year after Barron's named him the best equity-income managed based on his five-year performance, Mr. Wiles left Federated Investors in 1997 to launch his own investment firm, Rockhaven Asset Management. A dozen years and two detours later, he's flying solo at age 50, relaunching Rockhaven at a time when market behavior has even such professionals as Mr. Wiles stumped.
"It has very little to do with valuation and fundamentals. It has everything to do with where money is going to be treated the best," he said.
For the time being, that means just about anyplace but low-yielding U.S. Treasuries and the debilitated U.S. dollar, Mr. Wiles says.
"Almost everything else is more attractive," he said. As long as yields stay low and the dollar depreciates, investors will buy stocks, higher-yielding corporate bonds, [real estate investment trusts], commodities and gold."
However, once the unemployment rate drops, allowing the Federal Reserve to stave off inflation by raising interest rates, the party will end and it "won't be pretty," Mr. Wiles warns.
"I know it's setting up for something, but I don't know what it is," Mr. Wiles said. "When it changes, I'm going to be more defensive and protect on the downside."
The Sharon, Mercer County, native made a name for himself managing several Federated mutual funds, then did the same at Rockhaven. But the small firm's equity-income and dividend funds had a hard time drawing new money once the tech stock bubble burst in 2000. Hoping to attract more investors, he and co-owner AmSouth Investment Management sold Rockhaven in 2002 to Strong Financial, a Menomenee Falls, Wis., mutual fund operator.
A year later, Strong was one of several fund companies targeted by then New York Attorney General Eliot Spitzer and the Securities and Exchange Commission for improper trading. Strong was sold to Wells Fargo & Co. but Mr. Wiles didn't go along. He stayed in Pittsburgh, managing more than $2 billion in large cap portfolios for National City's investment management arm.
That lasted until the Cleveland bank's credit problems ended with its sale to PNC Financial Services Group last year. PNC already had large cap managers in Philadelphia, so Mr. Wiles restarted Rockhaven from his home. He was approved last week as a registered investment adviser by the Pennsylvania Securities Commission.
Investors looking for a "buy-and-hold" strategy won't find it at Rockhaven. Mr. Wiles says the strategy, recommended for many small investors, is dead. Here's why:
While stocks have returned about 9.5 percent annually since 1927, Mr. Wiles says that's misleading because it doesn't reflect the sharp swings Wall Street takes, movements that can produce dramatically different returns based on an investor's time frame for buying and selling. He cites the last decade as proof: the tech stock bull market and subsequent bear market, Sept. 11, the real estate and credit bubbles and the deluge that followed, and the market's rocketlike rise since March.
Mr. Wiles says he's developed a globally diversified strategy that will allow investors to get in and out of U.S. stocks, U.S. Treasuries, commodities, real estate and five other asset classes at appropriate times. What he came up with is a tactical asset allocation that won't squeeze the last penny out of bull markets but will minimize losses in bear markets. As a momentum investor, Mr. Wiles takes his buy and sell cues from swings in the prices of stocks, bonds and the other assets in his portfolio. He tested how those signals would have worked since 1999 and found that using them would have turned a $1,000 investment into $2,340 vs. $1,310 for the buy-and-hold investor.
"The key to the market timing I am doing is to participate in up trends and protect during downdrafts. It is really about lowering overall risk," Mr. Wiles said. "I have very firm buy and sell disciplines. Discipline and humility are the keys."
The knock on market timing is that, even if a manager makes the right moves at the right time, trading costs can eat up whatever advantage he has over a buy-and-hold manager. Mr. Wiles is curbing those costs by using exchange-traded funds. ETFs are baskets of securities built around indexes for stocks, bonds and other asset classes. Unlike mutual funds, which are bought and sold based on their price at the end of a trading day, ETFs trade like stocks. Their prices fluctuate throughout the day.
Mr. Wiles currently manages about $5 million. He is targeting investors with $500,000 or more, as well as charities and foundations with $1 million to $10 million.
While the last decade tested the mettle of even seasoned investors such as Mr. Wiles, it's been even harder on retail investors struggling to determine the best way to manage their retirement savings. Mr. Wiles doesn't think it's going to get any easier for them.
"They'll have to have a tougher stomach," he said. "I think markets are going to be volatile for a long time."
A year after Barron's named him the best equity-income managed based on his five-year performance, Mr. Wiles left Federated Investors in 1997 to launch his own investment firm, Rockhaven Asset Management. A dozen years and two detours later, he's flying solo at age 50, relaunching Rockhaven at a time when market behavior has even such professionals as Mr. Wiles stumped.
"It has very little to do with valuation and fundamentals. It has everything to do with where money is going to be treated the best," he said.
For the time being, that means just about anyplace but low-yielding U.S. Treasuries and the debilitated U.S. dollar, Mr. Wiles says.
"Almost everything else is more attractive," he said. As long as yields stay low and the dollar depreciates, investors will buy stocks, higher-yielding corporate bonds, [real estate investment trusts], commodities and gold."
However, once the unemployment rate drops, allowing the Federal Reserve to stave off inflation by raising interest rates, the party will end and it "won't be pretty," Mr. Wiles warns.
"I know it's setting up for something, but I don't know what it is," Mr. Wiles said. "When it changes, I'm going to be more defensive and protect on the downside."
The Sharon, Mercer County, native made a name for himself managing several Federated mutual funds, then did the same at Rockhaven. But the small firm's equity-income and dividend funds had a hard time drawing new money once the tech stock bubble burst in 2000. Hoping to attract more investors, he and co-owner AmSouth Investment Management sold Rockhaven in 2002 to Strong Financial, a Menomenee Falls, Wis., mutual fund operator.
A year later, Strong was one of several fund companies targeted by then New York Attorney General Eliot Spitzer and the Securities and Exchange Commission for improper trading. Strong was sold to Wells Fargo & Co. but Mr. Wiles didn't go along. He stayed in Pittsburgh, managing more than $2 billion in large cap portfolios for National City's investment management arm.
That lasted until the Cleveland bank's credit problems ended with its sale to PNC Financial Services Group last year. PNC already had large cap managers in Philadelphia, so Mr. Wiles restarted Rockhaven from his home. He was approved last week as a registered investment adviser by the Pennsylvania Securities Commission.
Investors looking for a "buy-and-hold" strategy won't find it at Rockhaven. Mr. Wiles says the strategy, recommended for many small investors, is dead. Here's why:
While stocks have returned about 9.5 percent annually since 1927, Mr. Wiles says that's misleading because it doesn't reflect the sharp swings Wall Street takes, movements that can produce dramatically different returns based on an investor's time frame for buying and selling. He cites the last decade as proof: the tech stock bull market and subsequent bear market, Sept. 11, the real estate and credit bubbles and the deluge that followed, and the market's rocketlike rise since March.
Mr. Wiles says he's developed a globally diversified strategy that will allow investors to get in and out of U.S. stocks, U.S. Treasuries, commodities, real estate and five other asset classes at appropriate times. What he came up with is a tactical asset allocation that won't squeeze the last penny out of bull markets but will minimize losses in bear markets. As a momentum investor, Mr. Wiles takes his buy and sell cues from swings in the prices of stocks, bonds and the other assets in his portfolio. He tested how those signals would have worked since 1999 and found that using them would have turned a $1,000 investment into $2,340 vs. $1,310 for the buy-and-hold investor.
"The key to the market timing I am doing is to participate in up trends and protect during downdrafts. It is really about lowering overall risk," Mr. Wiles said. "I have very firm buy and sell disciplines. Discipline and humility are the keys."
The knock on market timing is that, even if a manager makes the right moves at the right time, trading costs can eat up whatever advantage he has over a buy-and-hold manager. Mr. Wiles is curbing those costs by using exchange-traded funds. ETFs are baskets of securities built around indexes for stocks, bonds and other asset classes. Unlike mutual funds, which are bought and sold based on their price at the end of a trading day, ETFs trade like stocks. Their prices fluctuate throughout the day.
Mr. Wiles currently manages about $5 million. He is targeting investors with $500,000 or more, as well as charities and foundations with $1 million to $10 million.
While the last decade tested the mettle of even seasoned investors such as Mr. Wiles, it's been even harder on retail investors struggling to determine the best way to manage their retirement savings. Mr. Wiles doesn't think it's going to get any easier for them.
"They'll have to have a tougher stomach," he said. "I think markets are going to be volatile for a long time."
Len Boselovic can be reached at lboselovic@post-gazette.com or 412-263-1941.
Read more: http://www.post-gazette.com/pg/09326/1015180-435.stm#ixzz0XdA4PYKp
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