Alternatives, AM Fees, Asset Allocation, Asset Managers, Investment Research

Washington Trust’s Cloutier Banking on Deep-Dive Research to Drive PW Biz

Richard Cloutier, Jr., chief investment strategist in the wealth management division of Washington Trust Bank, is an advocate of deep-dive research as a way to help the bank’s portfolio managers better serve clients and mitigate risk. “We are strong advocates of research and continually engage in research to ensure that our strategies provide the best risk-adjusted returns possible” Cloutier said.

The bank has had eight studies published in the last few years, including one on exploiting the VIX entitled A Tactical Asset Allocation Strategy that Exploits Variations in VIX.  

Richard Cloutier, Jr., chief investment strategist, wealth management, Washington Trust Bank

“While we do not engage in market timing. Through our research, we created a dynamic hedging strategy to reduce portfolio risk when market risk is elevated,” Cloutier said. “We know that the level of VIX is a good indicator of perceived risk in the market. As you would expect, when risk is elevated, markets tend to decline and the riskier assets tend to perform more poorly. So, when VIX moves above its normal trading range, we reduce our exposure to the asset classes that are the most volatile.” Cloutier said that the use of an overlay to the managers long-term strategy provides additional downside protection for clients by reducing exposure to the more volatile assets when stress is high. “We help protect portfolios during market declines.”

Washington Trust’s overall investment strategy is to blend traditional assets, such as stocks and bonds, with alternatives in its clients’ portfolios to provide diversity and improve performance. “We will continue to use this approach, but we constantly look at ways of improving this strategy,” Cloutier said.

The firm’s current research on improving diversification is based on diversifying by risk factors rather than by conventional asset classes, Cloutier said. “Diversification allows investors to lower risk; building portfolios via conventional asset classes does not achieve true diversification, however. Seemingly diverse assets classes sometimes have high correlations. Compounding the problem is that in crises, many asset-class correlations move closer to a correlation coefficient of one–toward perfect positive correlation. Our research, along with other studies, has shown that we can improve our risk adjusted returns by diversifying via risk factors.”

Washington Trust recently updated its research on rebalancing. “The benefits of rebalancing are affected by taxes, trading costs, etc., and since these change over time, we want to make the necessary adjustments to ensure our rebalancing optimizes our clients’ performance,” Cloutier said. While we’d like to think performance is determined by our great management, we know costs are also an important factor, so we are looking at ways to reduce trading costs for stock purchases and management fees on funds that will help improve the performance of our clients’ portfolios.”

Beyond portfolio management, the firm has also updated its financial planning capabilities to make sure its clients’ assets are invested properly to meet their goals. We also look at ways to improve our client communication via videos, blogs, emails, etc. so that our clients stay informed on the market’s pertinent information,” he noted.   

Cloutier will speak about the Washington Trust approach when he participates in a panel discussion entitled The Future of Asset Allocation at MarketsGroup’s Private Wealth West Forum on July 31st, 2019. The panel’s participants will address what wealth managers are doing to ensure that their organizational structures, service models, strategies, products and pricing are positioned to achieve growth, revenue and relationship objectives. They will also discuss any changes to strategies they have made or remained with to better protect their clients’ money.

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