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…

2015 Outlook — Same song, slightly different arrangement

Jeffrey Knight, CFA, Global Head of Investment Solutions and Asset Allocation | December 15, 2014

…in our fourth-quarter Investment Strategy Outlook, the real loser in the face of ongoing dollar strength may be diversification. With so many assets proving vulnerable to currency movements, we believe investors must expand their search for diversifiers. Non-traditional holdings in areas like liquid alternatives, alternative beta exposures** and absolute return strategies can broaden an investor’s palate for diversification. Cross-asset market s…

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…

Does a perfect policy portfolio exist?

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

Risk Parity represents a significant advance in asset allocation, but we don’t believe that there is a single perfect policy portfolio. While Risk Parity works well in neutral markets, we don’t think it is the best policy under bearish, bullish or highly bullish market conditions. We believe that a policy function that rotates among four distinct policy portfolios is closer to perfect than any single policy portfolio. The idea of a policy port…

Opportunities in global infrastructure

Peter Santoro, Senior Portfolio Manager | February 3, 2014

Infrastructure investments may offer stable cash flows and diversification from more cyclical investments Infrastructure investments span the emerging and developed markets across many industries Today’s current market environment offers unprecedented opportunities for well-resourced investors Infrastructure represents the foundation for our day-to-day lives—the societal staples we rely on. And the stable fundamental demand drivers of infrastr…