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…

2015 Outlook — Same song, slightly different arrangement

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

…s than one to world stocks. We believe this adjustment helps in the direct comparison of stocks and bonds from a risk-adjusted return standpoint. The chart also shows a “line of best fit” through all of the points, which visually represents the compensation that investors get for adding risk by increasing allocations to the assets on the right of the zero point. Today, that line is quite steep, indicating a high marginal reward to investors willi…

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…

The end of “risk-on/risk-off”

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

…larly, 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 sold off, only sovereign bonds had positive returns. This risk-on/risk-off regime posed a problem for multi-asset portfolios as many of the traditional diversifiers of equities increasingly behaved much more like equities, making it harder to achieve…

Global Asset Allocation Outlook (June 2014)

Columbia Management Global Asset Allocation Team, | June 30, 2014

…of 4%-8%. Globally diversified portfolios should continue to fare well in this environment and the global asset allocation team continues to recommend modestly overweighting equities over bonds with a neutral allocation to commodities. We upgraded U.S. stocks from an underweight to a neutral position. U.S. equity valuations relative to other countries are looking a little rich but not enough to remain an underweight at this point. Within U.S. we…

Q&A with Jeff Knight

Jeffrey Knight, CFA, Global Head of Investment Solutions and Asset Allocation | November 10, 2014

…t last month. This view also aligns with our market state classification which currently suggests a more neutral risk-balanced portfolio allocation. Q: Are investors being adequately compensated for taking risk? A: In order to find any returns that are meaningful enough to help solve financial problems, you have to go out on the risk curve. And the overall pattern that we would expect is for that curve to flatten as investors take the bait, if yo…

January asset allocation update

Jeffrey Knight, CFA, Global Head of Investment Solutions and Asset Allocation | February 3, 2014

…o potentially negative over a longer holding period for a number of fixed income markets. Although interest rate risk remains strategically unattractive, we note that valuation improved considerably during 2013, and we find rates to be closer to fair value for longer duration bonds. In addition, we find that some fixed-income risks remain attractive. Certain spread sectors offer adequate compensation for credit and liquidity risk. We continue to…