Risk is inherent when it comes to investing. Risky behavior, however, is another matter.
For brothers Matt and Erich Patten, who oversee two mutual funds and other investments for Cutler Investment Group, aversion to risk was a trait passed along from their grandfather, Ken Cutler, who founded the company in 1977 and moved it to Southern Oregon in 1983.
A typical portfolio under management will possess large-cap — or mature — companies with a strong dividend history, easily liquidated during market stress, said Erich Patten, 34.
You won't see Facebook or other trendy stocks on the Cutler buy list.
"We avoid risk for the sake of avoiding risk," said Matt Patten, 36, the company's president. "Why have it?"
The Pattens entered the investment game not long after the dot-com bust and steered clear of the real-estate bubble's liquidity crisis that took out Lehman Brothers and reduced the value of Bear Stearns and Merrill Lynch to pocket change.
"We both invest in the same things we put our clients in," said Matt Patten, whose office is in the firm's Bigham Knoll headquarters in Jacksonville. "We want our risk aligned with our clients' risk."
The approach was lauded in this month's Kiplinger's Personal Finance report by contributing editor James K. Glassman.
"The fund, run out of Jacksonville, Ore.," Glassman wrote, "topped the (Standard & Poors) index by an average of 2.1 points per year over the past five years and by 0.5 point per year over the past 15. But its true attraction is below-average risk. Its portfolio of 35 mega-capitalization stocks is headed by IBM and American Express, both selling at 13 times estimated earnings."
Morningstar analysts have given Cutler Equity Fund five stars over the past five years.
Cutler Equity Fund has been the Rogue Valley's lone mutual fund. Last week, however, the firm capped a three-year effort to acquire the assets of the $60 million Elite Group Funds — Elite Growth and Income Fund, and the Elite Income Fund — managed by Dick McCormick of McCormick Capital Management in Seattle.
Following the transaction, the firm now boasts the $90 million Cutler Equity Fund and a $20 million bond fund, Cutler Income Fund. The equity fund traded for $13.25 on Tuesday, not far off its all-time high of $13.40, while the bond fund is at $10.41.
This week Cutler took another leap forward when it bought Cyprus Inc., a Charlottesville, Va., bond management firm run by Xavier Urpi, 56, who helped develop the Lehman Index family of funds years ago. Cutler anticipates firm-wide assets under management of about $900 million.
"We wanted to find the best fixed income manager out there today, and by buying Xavier's firm, we were able to bring him on board," Matt Patten said.
He likens the acquisition to Lithia Motors buying dealerships.
"We haven't seen too many opportunities for Southern Oregon firms to acquire firms from around the country," Matt Patten said. "When Lithia does, it's always great for the local economy; for once they aren't the only ones."
The company, whose chief executive officer is the founder's daughter, Brooke Ashland, has 14 employees, including four in Seattle, where Erich has worked since 2004.
The brothers both earned graduate degrees at the University of Chicago and went to work for the firm in 2003.
"Our grandfather (who died in 2006) was the developer of the process and mentored us in how the process works and why, and the conditions when the market does better or worse," Erich Patten said. "When something works well — and for 30 years it has — you don't want to rock the ship too much. Matt and I see ourselves as stewards of the process."
While they are unapologetic about their conservative stance, they understand why some managers are more inclined to risk.
"A lot of managers want to take more risk and understand parts of the market their clients aren't in," Matt Patten said. "So they will take more risk on their own."
Their income comes from charging a percentage of the funds they manage, so when their clients prosper, so do they.
"Our investors," Erich Patten said. "Want us to invest in the best combination of boring stocks and bonds to achieve the best total return."
Reach reporter Greg Stiles at 541-776-4463 or firstname.lastname@example.org.