Perspectives Blog

Duration for diversification

Columbia Management, Investment Team | November 19, 2013

Many investors struggle to determine the appropriate amount of bond duration in an environment of rising interest rates. The right amount of duration has to be considered in a portfolio context, because the main value of duration exposure comes through diversification. Because of the negative correlation between duration and the returns of riskier assets, high-quality fixed income will still be a cornerstone of any disciplined portfolio. By Za…

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…

Looking for diversification in emerging markets

Columbia Management, Investment Team | July 30, 2013

Emerging markets have become a significant component of the global economy, with higher GDP growth rates compared to developed markets. The wide range of local conditions and growth drivers present in emerging markets makes them particularly interesting as a diversifier for investors already exposed to developed markets. We believe that, for diversification, investors should consider small-mid cap emerging markets investments. By the Columbia…

Building a resilient portfolio

Jeffrey Knight, CFA, Head of Global Asset Allocation | July 16, 2013

Diversification is the single most important tool an investor has to improve their portfolio’s resilience to negative events. Now is an opportune time for investors to look at ways to protect year-to-date gains and prepare for monetary policy changes. Video: Two investment opportunities that may help stabilize portfolios today. Diversification is the single most important tool an investor has to improve their portfolio’s resilience to negative…

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…

The end of “risk-on/risk-off”

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

…ars (2008-2011). Correlations between equities in different regions (emerging markets (EM) vs. developed markets (DM)) used to be low, but also rose to over 80% during this same period, reducing the benefits of cross-regional diversification. Similarly, correlation between equities and high yielding bonds rose from about 50% to over 80%. When investors took risk, most assets rallied with the exception of sovereign bonds. Conversely, when risk sol…

Q&A with Jeff Knight

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

…pportunities in fixed income is wide and varied, and I think it still offers opportunity for return, but not if we 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 retur…