We strive to communicate authentically with all our clients, prospective clients, and business partners. Our goal is to present an inside look at who we are as a company and the individuals that comprise our team. The wealth management industry is a trust-based industry. Because we are based in Switzerland and cater to U.S. clients, we strive to bridge the geographical gap by letting you get to know our team members both professionally and personally. Today, we will sit down with Managing Partner Urs Vrijhof-Droese to learn more about who he is and what his role as the CIO of WHVP entails. We hope you are able to enjoy the interview and get to know Urs a bit better.
Jess: Hi, Urs. Thank you for taking the time to sit down with me to dive into one of the many roles you play here at WHVP. Specifically, it is relevant to talk about your role as Chief Investment Officer (CIO) for WHVP as it will give some insight to the readers about how we as a company approach investing, how you personally analyze the market, and what you see happening. Before we begin, could you give the reader a bit of background on how you made your way into the wealth management industry and how you got into investing in the first place?
Urs: Back in the day, when I was a kid, my parents always encouraged me to earn some pocket money after school. Therefore, there were different jobs I did. Among other activities, I had some chickens and sold the eggs in our village. When I was 15 years old, I saved quite a bit of money, considering my age, and therefore, my mum encouraged me to talk to my grandfather about investments.
Consequently, I started to invest my money in the markets. This was before the Great Financial Crisis. When the Great Financial Crises hit, I discussed my investments with my grandfather, and he encouraged me not only to stay invested but to increase my exposure even further. That taught me a crucial lesson when it comes to investing, which is not to panic and make investment decisions caused by emotions but motivated by your research.
I felt passionate about investing ever since I got exposed to it and have therefore decided early on to build a career in wealth management. After getting a dual degree in Law and Economics, I worked in an insurance company and at another independent wealth manager before the opportunity presented itself to join my father-in-law's company, WHVP. Currently, I am building on my academic education and am obtaining my CFA designation.
I have successfully passed level one and am now preparing for my second exam. I have been the CIO at WHVP for over four years now. This means that I head the investment committee, present investment opportunities, and assess opportunities. While our team has a very collaborative approach, the final say and, thus, the final responsibility for our portfolios lay with me.
It is quite interesting to hear your story about what led you to investing and the asset management profession. Especially hearing about how you experienced the first stock market crash shows how you can empathize with our clients and their emotions regarding market volatility. Along those lines, what investment strategies are most effective for achieving long-term financial goals?
I am a massive fan of buy-and-hold strategies. There is a saying here in Switzerland: back and forth empties your pockets. When I was younger, in my personal investing activities, I became highly motivated by my desire to be the best and overestimated my skills regarding investments. During that time, I became over-active and made mistakes, and I realized that approach is different from how you achieve your long-term financial goals. Looking back, it was a precious time since I learned a lot.
Keeping a long-term view is often forgotten because we get caught up in the media cycle and daily movements of the markets rather than the sustainability of the business models. How do you assess and manage risks in your investment portfolio?
In portfolio management, people face two main risks. They are systematic risk and systemic risk. While systematic risk affects the market overall and is impossible to diversify away from entirely, systemic risk can be related to specific industries and companies based on the controlling factors of how the system is managed with regulations and laws. This is the risk you can eliminate by proper diversification. But on top of that, you also have the risk of the investor's ignorance. This can be dealt with by doing your due diligence. One major reason we have so much volatility in the market is that many investors are not evaluating their investments properly. Investors would rather follow an investor legend like Warren Buffet or listen to what other analysts have to say. That is not false per se, as it can be a part of the due diligence process. However, the lack of knowledge leads to a situation where these investors panic and start making investment decisions based on emotions like fear or greed.
Ignorance is a great point to bring up, not because people are incapable but because they get lost or seek the easy way to invest, which does not exist. How do you determine the appropriate asset allocation for a client's investment portfolio?
At WHVP, we invest in four asset classes: Foreign Currencies, International Stocks and Bonds, as well as Precious Metals. We make direct investments in those asset classes. We pride ourselves on having great relationships with our clients and knowing them very well. This means we individualize the specific asset allocation based on the specific client's preferences, restrictions, time horizon, liquidity needs, and risk tolerance. For example, if a client tells me that he wants to buy a sports car or that she wants to make a round-the-world trip, these are important events to take into consideration when building the portfolio. What needs to be remembered is that determining an asset allocation is not a one-time thing. It is crucial to stay in close contact with the client and discuss regularly whether any events are coming up that lead to a situation where the asset allocation must be adjusted.
That is quite interesting; along those lines, what is your approach to selecting individual securities or investment products for inclusion in client portfolios?
We follow a combination of a top-down and bottom-up approach. I.e., we always start with a macroeconomic assessment. This means that through indices and research, we explore suitable countries for our clients' investments. Our process begins by considering a country's political stability, innovational strengths, and juristic environment. Additionally, we analyze the currency in terms of its potential to gain value against a basket of currencies from their main trading partners. In the current environment, we especially favor the Swiss market. In the next step, we investigate current short- and long-term movements to detect changes that either confirm current investments or point to new investment opportunities.
Additionally, we actively look for global megatrends. This then highlights industries that either benefit or suffer from the findings. This results in confirming the negative outlook or in finding a chance for a turnaround in a specific industry. Based on the opportune sectors and industries, companies will be researched and compared to each other for potential selection. Sometimes, a specific company gains attention due to an innovation, a contract they gain, or any other event. This leads to a situation where we start with the company level and then check the other features from our top-down approach, which I just described.
When investing in a company, you must ask yourself what makes this company unique. If you find a specific characteristic that differentiates a company from others, the question becomes how will they stay successful in their industry long-term. I believe that one of the most important assets a company has is its employees. So, a company needs to have a management team full of integrity and authenticity. A company can have the best product or service, but if the management is not doing its job, it will lose out on its innovation and market share, meaning its corporate gains will fall.
On top of that, I want to make sure that the company has a sound balance sheet. During the last decade or so, it was less significant since money was given out for free, with interest rates being so low. However, these times are over, which means financial credibility is more significant when investing to meet one's long-term goals. This is because you need the companies you are invested in to be suited for the long run, and controlling their finances is vital in this endeavor.
I, too, agree the time of easy money is over, and many factors need to be assessed and re-assessed over time. So, how do you stay current on market trends and economic indicators that could impact your investment decisions?
As independent wealth managers, we are in the opportune position to have access to the research departments of the custodian banks we work together with. Once a week, we have an investment call with the Head of Investment Research at one of our main partner banks. Additionally, we get weekly research reports from different institutions and can approach them for specific research on companies we are screening. While we do rely on external research to some extent, we always make investment decisions in-house. This is our core business, and it is important that we, as the relationship managers of our clients, actually take the responsibility of making the decisions, as we know our clients and their goals best.
Additionally, we are, of course, also staying up to date through the news and attending regular events either hosted by the companies themselves or industry events that talk about economic and geopolitical developments as well. While being close to the source is always good, one must understand that managers tend to sugarcoat things. Accordingly, you must always take away some excitement from everything you read or hear directly from a company's management.
It is undoubtedly a new time for investors and companies. Thank you for sharing your thoughts. How do you balance the need for diversification with the desire to maximize returns for clients?
This goes back into our discussion of how I determine a portfolio's asset allocation. Communication and transparency are crucial. Once I come up with an asset allocation, I discuss it with the client, and afterward, I meet with the client on a regular basis to discuss the portfolio and its performance. If the client is unsatisfied with the performance, I have to explain the drivers of performance and develop ideas of how to increase the performance. However, performance and risk are correlated. To achieve a higher performance, you need to be able to take on higher risk. That is what I have to make sure that the client understands.
Furthermore, diversification is vital to reduce systemic risk. However, there is a threshold where more diversification does not add to this benefit of reducing risk. Accordingly, a specific concentration helps ensure you are aware of the risks you have included in your portfolio. Being aware of your risks makes it possible to manage them better. Finally, on this point, I believe that if you focus on adding high-quality investments over a certain amount of time, performance will not be an issue anymore.
You mentioned risks and how we use diversification to help mitigate some of them. Can you discuss your firm's investment philosophy and how it differs from other asset management firms?
We have a clear focus on giving Americans access to international diversification. Our clients usually live in the U.S. One of wealthy Americans' main issues is that they are often not adequately diversified. Frequently, they are solely invested in the U.S. and the U.S. dollar. We believe that diversification should include the whole world. Therefore, we are covering the part they don't get in the United States. Consequently, we exclude the U.S. from our investment basket. This is one significant part that differentiates us from other registered investment advisors. We take a long-term buy-and-hold strategy focusing on direct investments for our clients.
Thank you for the insightful thoughts, Urs. One point here is that I have spoken to Americans about global diversification. They often tell me, "I have investments outside of the U.S.," but when I ask them how they have done this, they tell me that they are diversified out of the U.S. because they hold a few global (ex. USA) mutual funds or ETFs. I then have to explain that while this can offer some benefit, these investments are denominated in USD and held by U.S. companies. Hence, the benefit is only partial as the company gains the benefit of the U.S. dollar losing value against the foreign currency, not them, and their assets are still held in the U.S., giving them no mitigation of risk in terms of the U.S. environment—economy and politics—posed to their hard-earned wealth.To end the interview, I would like to ask a personal question so the reader can get to know you a bit more. Who was your hero growing up, and why? Do you still draw inspiration from this person?
There were many people I looked up to when I was a kid. However, I always admired my father's reliability and sense of humor. Being conscientious and, at the same time not taking yourself too seriously are characteristics I still appreciate a lot when dealing with my fellow human beings. These are the same attributes that still inspire me today.
Thank you, Urs, for taking the time to share your thoughts and experience.
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