Perspectives Blog

2015 Outlook — Same song, slightly different arrangement

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

…ach asset, the expected return (proxied by yield-to-maturity for bonds and by implied cost of equity capital for stocks) is plotted against the product of volatility and correlation to world equities. By incorporating correlation, we give credit to assets that offer a diversification benefit by adjusting the asset’s volatility downward as long as it has a correlation of less than one to world stocks. We believe this adjustment helps in the direct…

Thoughts on navigating market volatility in today’s technology markets

Rahul Narang, Senior Portfolio Manager | April 28, 2014

…and Internet. In recent weeks there has been a dramatic shift in alpha generation from hyper growth technology stocks to more value-oriented names. We can attribute this to a number of factors: 1) improving economic data means a lower multiple for hyper growth stocks and higher multiples for value/cyclical names; 2) Fed Chair Janet Yellen’s reaffirmation of the taper; 3) geopolitical upheavals; 4) prime brokerage data suggests that hedge funds…

A less certain world favors high-quality stocks

Philip Dicken, Head of European Equities, Threadneedle International Ltd | October 6, 2014

…d the bond proxies to perform so well this year. We surmised that some of the more domestically-focused European stocks would outperform as the economic recovery became more embedded — a reasonable assumption given what has happened in other developed markets in recovery mode, such as the UK Therefore, we started 2014 with a bias towards higher-quality, domestically focused stocks in areas including financials, transport and leisure, media, and s…

Are financial markets priced for secular stagnation?

Columbia Management, Investment Team | December 15, 2014

…we believe that corporate credit markets are not priced for a protracted period of secular stagnation. Moving to stocks we might expect that the Japanese script is pretty clear: when secular stagnation arrives, sell everything and don’t look back. But the valuation of Japanese stocks in 1989 was a world away from the valuation of U.S. stocks: the price/earnings ratio of the Topix index was 60X in 1989, and this compares to a trailing price/earnin…

Building wealth through dividend investing

February 18, 2014

…,  dividends have been an important component of total return, with the best opportunity for total return in the stocks of high-quality companies that can sustain and grow their dividend over time. Higher quality stocks act to mitigate risk and offer downside protection during times of market stress. By Scott L. Davis, Senior Portfolio Manager, and Michael S. Barclay, CFA, Senior Portfolio Manager How can investors build wealth over time and con…

Beware of earnings gimmicks

Jason Wang, Senior Quant Analyst | March 10, 2014

…eporting choices and backed by actual cash flows. Academic literature (Sloan 1996; Richardson et al. 2005) shows stocks with disproportionately wide gaps between cash flows and reported earnings have lower future returns. Our own research confirms these findings. Stocks with the lowest accounting accruals outperformed their benchmark by 2.7% per year between 1993 and 2013. On the other hand, stocks with the largest level of accruals underperforme…

Has dividend investing lost its luster?

Columbia Management, Investment Team | May 12, 2014

…ical stock market outperformance from high-yielding equities remain intact. Briefly, valuations of high-yielding stocks benefit from the capital discipline dividends impose on management, dividends enjoy favorable tax treatment relative to interest income and growth in dividends can provide a measure of inflation protection for portfolio income. We believe the current environment remains very favorable for high-yielding stocks for two reasons; 1)…