Perspectives Blog

Credit alternatives in government-backed debt

Columbia Management, Investment Team | June 23, 2014

…Development Company)/504, and SBIC (Small Business Investment Company) programs. The SBA CDC/504 program provides secured financing for the purchase or improvement of real estate and long-term equipment through 10- or 20-year loans. Assets financed through the program require three parts: up to 50% from a senior bank loan, a maximum of 40% through a junior loan from the SBA, and at least 10% equity contribution from borrower. The SBA loan not onl…

Gut check: The outlook on fixed income

Colin J. Lundgren, CFA, Head of U.S. Fixed Income | February 24, 2014

…be able to tighten enough to offset the effect of rising rates. High-quality bonds may struggle to generate coupon-like returns, which is better than last year but nothing to brag about. Do we prefer high-yield bonds or bank loans? High-yield bonds. High-yield bonds and bank loans were the only two winning sectors in fixed income in 2013 with returns of 7% and 5%, respectively. We are comfortable holding our current positions in high yield and b…

Could a 529 plan help you pay less for college?

Columbia Management, Investment Team | May 22, 2014

College savings plans offer an important tool for managing the cost of higher education. Saving in advance could offer a significant cost savings compared to taking loans during college. Use our 529 Savings vs. Loans Calculator to run your own personalized estimate. Saving for college early on can greatly benefit you in the long run. By saving in an investment vehicle such as a 529 college savings plan, you may be able to avoid relying on loan…

Is Europe heading for Japanese-style deflation?

Martin Harvey, Fund Manager, Threadneedle International Ltd | August 4, 2014

…nd subsequent slow global recovery goes some way to explaining the abruptness of Europe’s decline. Cultural factors also contributed to the gradual pace of Japan’s economic demise. Specifically, within the banking system, bad loans were not realized in a timely fashion in Japan and were simply rolled over, leading to the build-up of so-called “zombie companies.” Consequently, as banks were not realizing losses in a timely fashion, the subsequent…

Missing links and multipliers

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | June 9, 2014

…o-debt ratios. The outcome has left entry-level and first time homebuyers on the sidelines especially those with student debt. This was underscored recently by a New York Fed study* which showed that young people with student loans were much less likely to invest in houses than those without loans, which is a reversal of pre-recession trends. They believe this is one reason why the housing recovery has not been stronger. When you restrict credit…

Does a perfect policy portfolio exist?

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

…rove diversification. The second breakthrough is more controversial; namely, Risk Parity strategies utilize financial leverage. The typical Risk Parity portfolio owns about twice the market exposure of its cash on hand, so is leveraged about 2:1. The leverage enables risk balance without risk reduction. Without leverage, asset weightings to volatile assets would need to shrink, while investments in lower volatility assets would rise until the ris…

Q2 fixed income outlook – Hitting for the cycle

Gene Tannuzzo, CFA, Senior Portfolio Manager | March 31, 2014

…nse of credit quality. In bond portfolios, we retain a core allocation to corporate sectors overall, but have started to reduce exposure both to high-quality bonds with limited upside potential as well as high-yield bonds and loans in which credit risk or covenants appear too aggressive. Exhibit 1: High yield corporate new-issue volume Source: JP Morgan The economic cycle is favorable at this stage, but much less advanced than the credit cycle….