Perspectives Blog

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…

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…

Constraints of convention – Does a portfolio design have to be static?

Jeffrey Knight, CFA, Global Head of Investment Solutions and Asset Allocation | July 14, 2014

A 60/40 portfolio may appear to be balanced, but when viewed through a risk lens it is clear that the equity allocation comprises a disproportionate amount of the risk. As a static strategy, the very thing that has helped risk parity succeed over time may prove to be its biggest liability going forward, and that is all those extra bonds. Instead of always being accountable to the same neutral portfolio, why not shift accountability to a startin…

Fixed income strategies – The pros and cons of generating returns with negative duration

Columbia Management, Investment Team | July 14, 2014

Unconstrained multi-sector bond funds have become very popular due to their flexibility to invest tactically across sectors and manage interest rate sensitivity. While it may be useful for a fixed income manager to employ a negative duration strategy, getting the timing right can be very challenging. With interest rates defying expectations so far in 2014, investors need to ask what should be at the core of their fixed income portfolio. By Kri…

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…

Three tools for a resilient portfolio

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

Portfolio resilience refers to the ability of a portfolio to withstand unanticipated adversity and to respond from that adversity. Effective diversification requires thinking not only about allocating the assets in a portfolio but about allocating the risks. A flexible strategy enables a portfolio to adapt to changes in the relative attractiveness of different risks. Watch: Jeff Knight describes three strategies his team employs in seeking to…

The case for active muni management

Kimberly Campbell, Senior Portfolio Manager | April 21, 2014

…nd local income taxes. Municipal bonds are one of the few investments that remain exempt from many of these taxes, including the NIIT. Active is the answer After determining that muni bonds should play a part in a diversified portfolio, the next question is: Which investment approach should one take — active or passive? With so many investment options to choose from, some believe that picking a passive municipal investment strategy is a no-braine…