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…

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…

2015 Outlook — Same song, slightly different arrangement

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

…ced as ever that equities have a significant advantage over other asset classes based on valuation. 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 methodolog…

Ghost of crises past

Jay Leopold, Head, U.S. Investment Risk | October 27, 2014

…ers have often noted that October can be a scary month, especially when ghosts of past crises suddenly reappear. Risk indicators in perspective The U.S. Risk Dashboard measures risk appetites in the capital markets. For illustrative purposes in the VIX graph above, 84% of the daily VIX observations since 1990 were lower than the closing VIX on October 15, 2014. This score of 84 is displayed via a blue bar in Exhibit 2, indicating it is in “risk-o…

Credit alternatives in government-backed debt

Columbia Management, Investment Team | June 23, 2014

One way investors may boost yields without taking on undue credit risk is through U.S. government agency debt. While many investors associate U.S. agency debt with very low yields, other types of agency debt can offer significant spreads to Treasuries with a modest decline in liquidity. We have been increasing our allocation to the agency market in core portfolios as a way to reduce credit risk while maintaining competitive yields. By Carl W….

October — It always seems to happen in October!

Ted Truscott, CEO, Global Asset Management | October 20, 2014

…he volatility of that growth. Market assumptions for steady growth did not necessarily account for all the other risks. While we continue to see equities as an important pillar of longer term allocation strategies, investors need to be vigilant about the levels of risk that a high-equity allocation adds to a portfolio. “Virtually everywhere else, however, the news is grim. The euro zone, the world’s second-biggest economic area, seems to b…

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…