Perspectives Blog

A primer on preferred securities

Carl Pappo, Head of Core Fixed Income | March 10, 2014

…preferred securities are perpetual securities that rank ahead of common shares and behind all other debt. These securities are typically held by retail investors and usually trade over the counter. Historically, they have been denominated in shares, issued at $25 per share. More recently, institutional interest in these securities has supported the creation of $1,000 denominated (bond like) securities. • Contingent Convertible Securities (CoCo)…

A port in the storm — Short muni funds can offer refuge in the face of rising rates

Catherine Stienstra, Senior Portfolio Manager | October 2, 2014

…Municipal Bond indexes produced an occasional loss. 3. Yield advantage through security selection in lower-rated securities. Money market funds are restricted to owning bonds within the highest credit quality categories, with the bulk of assets limited to top tier-rated securities. As a result of the Fed’s Zero Interest Rate Policy (ZIRP), very short, high quality securities have produced virtually no return over the last several years. Conversel…

The case for active bond management

Carl Pappo, Head of Core Fixed Income | August 25, 2014

There have been instances where the passive approach to bond investing produced significant underperformance relative to a benchmark. Index funds are at a significant disadvantage to active portfolios in which managers incorporate valuation into their decision making process. The many nuances and inefficiencies of the fixed income market create both difficulties for indexing and opportunities for active management. Co-authored by Michael W. Za…

Credit alternatives in government-backed debt

Columbia Management, Investment Team | June 23, 2014

…h-quality industrial corporates, which lack the government guarantee, are currently offering similar spreads for securities with a comparable duration. With credit spreads approaching pre-crisis tight levels, the risk-reward for credit risk has become less compelling. The Columbia Management Core Team has taken advantage of this relationship by swapping from 5-year high-quality corporates into REFCORP securities, and from 10-year corporates and s…

Compelling opportunity in municipal bonds

Catherine Stienstra, Senior Portfolio Manager | November 7, 2013

…returns of some municipal bond investments (depending on the state of residence). Income from certain tax-exempt securities may be subject to the federal and/or state alternative minimum tax for some investors. In addition, federal and state income tax rules will apply to any capital gain distributions and capital gains or losses on sales. When investing in municipal securities, investors in higher tax brackets can receive a greater tax benefit t…

Flexible income strategies — Avoiding side effects from the Fed’s medicine

David King, CFA, Senior Portfolio Manager | August 11, 2014

…yet to be fully noticed by the market, but may have similar potential returns to those of the early YieldCos. 3. Convertible bonds into private companies Average investors would certainly like a shot at the financial success of prosperous private equity capitalists. The newly invented idea of development-stage companies issuing convertible bonds with high profit potential in a future IPO is an innovation we are following closely. One issue of thi…

New taxes require strategies to maximize after-tax return

Abram Claude, Vice President, Columbia Management Learning Center | March 18, 2014

…returns by mitigating the additional tax bite that began in 2013. Managing the differential in tax treatment of securities through asset location Investors with sizeable investments in taxable accounts, especially investors who are still working and are not currently living on their investments, should consider a strategy for sheltering tax-sensitive securities through asset location. Once an optimal asset allocation strategy is in place, the ov…