Perspectives Blog

Duration for diversification

Columbia Management, Investment Team | November 19, 2013

…that is not how it really works. Investors hold portfolios for total return but invest across asset classes for diversification. Diversification is still one of the most fascinating ideas of financial economics: one portfolio can have the same risk but higher total return than another simply by investing in different markets. This basic principle should guide decisions about an issue many investors are struggling with today: the appropriate amou…

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…

Correlation’s essential role in diversification

Columbia Management, Investment Team | December 5, 2013

Diversification strategies can help mitigate overall portfolio volatility. An important component of diversification strategies is correlation, or the measure of how one security moves in relation to another. Portfolios with lower correlation among assets will experience less overall volatility, even if the underlying assets are equally volatile individually. Most investors have heard about the concept of diversification, the typical expressio…

The end of “risk-on/risk-off”

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

The recent decline in cross-asset correlations may offer better investment opportunities for active managers Lowering both cross-asset correlations and inter-asset correlations provides potential benefits for structuring multi-asset portfolios Active managers should seek non-traditional diversifiers of portfolio performance and remain flexible A notable event of 2013 was the remarkable decline in cross-asset correlations implying potentially b…

Q&A with Jeff Knight

Jeffrey Knight, CFA, Global Head of Investment Solutions and Asset Allocation | January 6, 2014

…e organize our portfolios entirely to be about whether rates go up or down. The other reason for owning bonds is diversification, but we have to pay attention to how correlations are moving between bonds and other risky assets, particularly stocks. Since last summer, we’ve seen a much closer positive correlation between the returns to bonds and the returns to equities, meaning you’re getting less and less diversification benefit from…

Hungry for income? High yield munis could be your meal ticket

Chad Farrington, CFA, Head of Municipal Bond Credit Research and Senior Portfolio Manager | May 28, 2014

…t performance does not guarantee future results. Higher returns, higher risk — rely on professional research and diversification The high yield sector generally provides higher returns than the investment-grade space. With the higher returns comes greater risk and volatility, requiring greater emphasis on fundamental credit research, attention to individual credits and diversification across issuer, sector and geography. As such, we suggest that…

Time, not timing

Columbia Management, Investment Team | November 26, 2013

Historically, some of the worst short-term market fluctuations and losses were followed by periods of substantial market recovery. Investors who try to time market swings often end up missing out on the market’s best days. Asset allocation, diversification and periodic rebalancing are tools investors can use to help weather market downturns. Sometimes the best selling strategy for investors may simply be — don’t. Focus on buy and hold for the…