Perspectives Blog

Holding multiple investments does not ensure better diversification

Columbia Management, Investment Team | April 23, 2014

The degree of risk reduction benefit in diversification depends directly upon the correlation of the portfolio’s assets. Adding just one zero-correlated asset to a portfolio reduces risk 29.5%, while adding a thousand 66%-correlated assets reduces risk by only 19%. Well-designed absolute return products can be meaningful additions to traditional allocations, substantially enhancing diversification. By Todd White, Head of Alternative Investment…

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…

Monetary policy shift creates new investment challenges

Columbia Management, Investment Team | August 6, 2013

Going forward, investors should look for return opportunities that do not depend upon easy money. Diversification strategies must take into account expected high correlations and the vulnerability of “safe” assets to changes in monetary policy The repricing of many assets as the second quarter drew to a close has created an expanded set of attractive investment opportunities. For most of 2013, financial markets have been responding to a nearly…

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

Why invest in long-term muni bonds? Why investors should focus on tax-free income and total return Many investors fled the muni market in 2013, as $60 billion in mutual fund redemptions attests. Particularly hard hit were longer-maturity funds, likely due to investors anticipating higher interest rates and the negative impact that would have on fixed-income investments, especially longer bonds. While such concerns appear rational, is avoiding…

The importance of taking a long-term perspective

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

We examine the value in maintaining a long term outlook for major asset classes We review our forecast for several major asset classes over the next five years Why maintaining realistic expectations for long term asset class performance is so important For asset allocation decisions, we find great value in maintaining a long-term outlook for major asset classes. Twice a year, in fact, we conduct an extensive update of our five-year return fore…

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

Columbia Management, Investment Team | July 14, 2014

…ttraction? Exhibit 1 Source: Morningstar Direct, 2013 category flows According to the category definition, a nontraditional 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 s…

Global market mid-year outlook

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

…rs still have confidence in the outlook for profits. Global equities and global bonds made progress in May with 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