Perspectives Blog

Does a perfect policy portfolio exist?

Jeffrey Knight, CFA, Global Head of Investment Solutions and Asset Allocation | May 5, 2014

through ideas to the practice of asset allocation. The first is the technique of measuring risk allocation as opposed to capital allocation. For example, a portfolio with 60% of its assets in equities and 40% of its assets in bonds might seem balanced, but in risk allocation terms it is anything but balanced. In fact, roughly 90% of the ups and downs of such a portfolio can be traced to the stocks, with bonds contributing a mere 10% of the volati…

The end of “risk-on/risk-off”

Anwiti Bahuguna, Ph.D., Senior Portfolio Manager | February 3, 2014

…mplying potentially better investment opportunities for active managers. After the financial crisis, cross-asset correlations rose sharply as asset prices reacted predominantly to macro factors and less to individual stock or bond characteristics. For example, while the correlation between equities and commodities used to be negative or very low, it rose to over 80% during the crisis years (2008-2011). Correlations between equities in different r…

Trouble in paradise: Q&A about Puerto Rico bonds

Chad Farrington, CFA, Head of Municipal Bond Credit Research and Senior Portfolio Manager | January 2, 2014

Why has Puerto Rico become such an issue now? Should investors be concerned with a downgrade or default? Is Puerto Rico a systemic risk for the municipal market? Historically, Puerto Rico (PR) bonds’ high yield and triple tax exemption (federal, state and local) had been a big lure for many institutional investors, such as mutual funds. PR debt exposure in municipal bond funds, namely single-state municipal bond funds, proved advantageous for sh…

Constraints of convention – Does a portfolio design have to be static?

Jeffrey Knight, CFA, Global Head of Investment Solutions and Asset Allocation | July 14, 2014

A 60/40 portfolio may appear to be balanced, but when viewed through a risk lens it is clear that the equity allocation comprises a disproportionate amount of the risk. As a static strategy, the very thing that has helped risk parity succeed over time may prove to be its biggest liability going forward, and that is all those extra bonds. Instead of always being accountable to the same neutral portfolio, why not shift accountability to a startin…

Interpreting the bond rally from a multi-asset perspective

Jeffrey Knight, CFA, Global Head of Investment Solutions and Asset Allocation | June 2, 2014

A framework for identifying capital market states can help set expectations for markets in the aftermath of the recent bond rally. Our framework suggests a highly bullish market state for equities although that market state would shift to bearish if conditions became more neutral. While we expect ongoing strength in equities (which should pressure bond markets and drive yields higher), the durability of strong performance in risk asset markets…

The case for active muni management

Kimberly Campbell, Senior Portfolio Manager | April 21, 2014

Muni bonds represent an attractive investment opportunity Active management is a value add in these volatile markets Professional money managers can help investors navigate an ever-changing environment Where does one invest in a world of uncertainty? Rising taxes, volatile markets, low yields, economic stagnation, geopolitical unrest. We live in a world of great uncertainty — yet our investment goals remain the same: a comfortable retirement,…

Fear is not a strategy

James Dearborn, Head of Municipal Bonds | November 18, 2013

As muni bond prices fell and yields soared in recent months, fear and uncertainty kept investors away. Amidst the unprecedented fear-based sell-off, the fundamentals of the muni bond market continue to strengthen. Bypassing muni bonds may mean missing out on today’s attractive long-term buying opportunities. Tax-free income is a big reason why so many investors have included municipal bonds in their financial plans. In recent months, yie…