Perspectives Blog

Holding multiple investments does not ensure better diversification

Columbia Management, Investment Team | April 23, 2014

…ons to effectively lower the risk in a portfolio. [For a detailed analysis, see our white paper, “Reducing risk: Absolute return and the pursuit of better diversification.”] This is why well-designed absolute return products — which seek positive expected returns through multiple return streams with consistently low or no correlation to equity or fixed-income markets — can be meaningful additions to traditional allocations, substantially enhancin…

Understanding the power of alpha

Matt Scales, CFA, Head of Product Development and Strategy | January 27, 2014

Sources of return – such as quality alpha – that are not structurally tied to the direction of markets can be a valuable tool for diversifying portfolios Market betas have a positive expected return but can be subject to long periods of poor performance Finding sources of return that do not rely on markets going up to make money is not easy, but it is worth the effort The term “alpha” (which until recently was relatively unknown) has become pa…

Finding the sweet spot — Value investing along the muni yield curve

Paul Fuchs, CFA, Portfolio Manager, Municipal Bonds | August 27, 2014

…ng an additional year until a bond matures. In the chart below we look at an illustration of roll-down. Expected return and percent of maximum expected return one-year horizon — unchanged yield environment Source: Bloomberg. The chart above plots the AAA municipal benchmark yield curve as of July 31, the expected total return over the next year for bonds maturing between two and twenty years and the percent of the maximum expected return each ma…

Don’t throw the baby out with the bath water – The case for long muni bond funds

Catherine Stienstra, Senior Portfolio Manager | January 29, 2014

…heap level of munis potentially represents a cushion against rising Treasury rates if muni/Treasury yield ratios return to historical levels. Exhibit 2: Barclays Municipal Bond Index calendar year returns Source: Barclays, December 2013. Past performance does not guarantee future results. It is not possible to invest directly in an index. Muni mutual fund outflows in 2013 exacerbated the steepening of the curve. Historically, when the yield curv…

The importance of taking a long-term perspective

Jeffrey Knight, CFA, Global Head of Investment Solutions and Asset Allocation | February 3, 2014

…those that we have seen over the past several weeks. Chart 1 shows our forecasted five year total average annual returns for several major asset classes (2014-2018, compiled as of December 31, 2013). Disclosure: The chart represents return forecasts for several asset classes. These forecasts are forward-looking based upon the reasonable beliefs of the Columbia Management Global Asset Allocation team and are not a guarantee of future performance….

Global market mid-year outlook

Mark Burgess, Chief Investment Officer, Threadneedle Investments | June 16, 2014

…the former outpacing the latter in local currency terms; for the month, the MSCI World index rose 2.34% in total return terms while the JP Morgan Global Government Bond index returned 0.87%. Commodities, which prior to May had performed very robustly, lost some ground as the Dow Jones-UBS Commodity index produced a dollar total return of -2.87%. Nonetheless, returns from the asset class remain well into positive territory for 2014 to date. Lookin…

Fixed income strategies – The pros and cons of generating returns with negative duration

Columbia Management, Investment Team | July 14, 2014

…traditional bond fund differs from its multi-sector peers in two distinct ways: either the fund has an “absolute return” focus, meaning it seeks to avoid losses and produce returns uncorrelated with the overall bond market, and/or it employs an “unconstrained” approach and therefore has greater flexibility to invest tactically across sectors and manage interest rate sensitivity. This includes the ability to take a negative duration position. At a…