Perspectives Blog

Engineering a better retirement portfolio

Columbia Management, Investment Team | June 4, 2013

Experiencing a significant portfolio loss in the early retirement years (timing risk) is one of the greatest risks to the longevity of a retirement nest egg (shortfall risk). This risk is typically a function of being concentrated in the wrong asset class — any asset class — at the wrong time. By looking at a portfolio through a risk lens, investors can gain valuable insight into building a portfolio that minimizes concentration risk and can in…

The end of “risk-on/risk-off”

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

…but also rose to over 80% during this same period, reducing the benefits of cross-regional diversification. Similarly, 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 t…

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…

The secret to managing pension plan risk

Frank Salem, Senior Portfolio Manager | February 10, 2014

Historical overreliance on risk assets have made pension plans vulnerable Why funded status is the best measure of a pension plan’s health How can pension sponsors manage funded status volatility? This past fall marked the one-year anniversary of the devastation to the New York area caused by Super Storm Sandy. Following the disaster, many who rebuilt also added safeguards, such as moving structures further from the beach and building higher a…

Take an active approach to selecting your active manager

Robert McConnaughey, Director of Global Research | April 7, 2014

Be sure the manager takes enough risk Be sure the manager takes intentional, well-informed risk Be sure the manager has delivered returns for that risk taken across multiple backdrops For some time, we have written about the challenges active equity managers face from a market with unusually high cross-correlations. We have also stated our belief that the correlation pendulum would swing back to more normal levels (at least) as the aftershocks…

What should U.S. bond investors expect in 2014?

Zach Pandl, Portfolio Manager and Strategist | January 6, 2014

The timing of the Fed’s QE exit is no longer the central question An accelerating economy could mean another challenging year for duration risk A major question is whether markets begin to doubt the Fed’s commitment to low rates If bond investors were asked to summarize 2013 in a single word, we suspect that many would pick “taper.” The question of when the Federal Reserve (the Fed) would begin dialing back quantitative easing (QE) dominated m…

Trouble in paradise: Q&A about Puerto Rico bonds

Chad Farrington, CFA, Head of Municipal Bond Research | January 2, 2014

Why has Puerto Rico become such an issue now? Should investors be concerned with a downgrade or default? Is Puerto Rico a systemic risk for the municipal market? Historically, Puerto Rico (PR) bonds’ high yield and triple tax exemption (federal, state and local) had been a big lure for many institutional investors, such as mutual funds. PR debt exposure in municipal bond funds, namely single-state municipal bond funds, proved advantageous for sh…