Perspectives Blog

Does a perfect policy portfolio exist?

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

…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 portfolio, the cor…

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

…mean to have negative duration? Negative duration: How to get there and what it costs To decrease duration in a portfolio, the investment manager will typically employ one or both of the following strategies: buy bonds with short(er) maturities or sell Treasury futures. The former is pretty straightforward, but the latter requires an explanation. Portfolio managers can achieve negative duration shorting Treasury futures, thereby giving the portf…

Building better portfolios in a low return world

Anwiti Bahuguna, Ph.D., Senior Portfolio Manager | November 17, 2014

…. Adding equities only improves the return profile marginally. Based on these projections, for a simple balanced portfolio of 50/50 U.S. equities and bonds, returns going forward are likely to be quite modest. For investors looking for higher returns, solutions require a non-traditional approach to portfolio construction and must emphasize flexibility. We believe this can be done using three different approaches: First, investors need to build po…

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

…aluation. Managing the risk of simultaneous drawdown across asset classes requires a process to actively de-risk portfolios and a methodology for diagnosing the conditions to trigger such a step. To manage risk and stabilize portfolio values in case equities do not perform well, we favor non-traditional diversifiers, explicit downside hedges and a methodology for active risk reduction. Note: Look for Jeff in the December 13 edition of Barron&#82…

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…