Perspectives Blog

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…

Correlation’s essential role in diversification

Columbia Management, Investment Team | December 5, 2013

Diversification strategies can help mitigate overall portfolio volatility. An important component of diversification strategies is correlation, or the measure of how one security moves in relation to another. Portfolios with lower correlation among assets will experience less overall volatility, even if the underlying assets are equally volatile individually. Most investors have heard about the concept of diversification, the typical expressio…

Are municipal bond rating agencies shifting the goalposts (again)?

Columbia Management Municipal Investment Team, | September 30, 2013

…that, generally speaking, there is no fundamental change in the credit/risk profile of the affected credits — simply a change in the rating agencies’ weighting of credit fundamentals. Given public rating and subsequent price volatility, thorough and independent credit research has become critically important for municipal bond investors. By Ty Schoback and Michael Taylor, Senior Analysts, Tax-Exempt Fixed-Income Research It has been just over t…

Duration for diversification

Columbia Management, Investment Team | November 19, 2013

…on of returns — instead of a midpoint of 7.2%, the midpoint falls to zero (Exhibit 1). But the critical point to remember is that, in this example, only the midpoint is changing. Other aspects of Treasury returns — like their volatility and, most importantly, their correlations with other asset returns — need not change just because rates are rising. This means that Treasuries can still have diversification value — they can enhance portfolios’ ri…

The importance of taking a long-term perspective

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

…nkly, our expectations for bonds in 2014 are even more meager than our already subdued five-year forecasts. The fact that bonds performed well in January, then, could present an opportunity to reduce duration when the current volatility storm subsides. The other asset category to consider is emerging markets (EM). Here, we make the simple observation that investor flows turned negative during 2013, and provide an ongoing tactical headwind as 2014…

Opportunities in the middle ground

Columbia Management, Investment Team | July 2, 2013

Investors seeking growth opportunities for an equity portfolio should not overlook mid-cap stocks. Mid-size companies typically feature a combination of desirable attributes – more stable than start-ups yet more flexible than large companies. Investors holding mid-cap stocks over long periods have benefited from strong performance with less volatility compared to small-cap stocks. Finding the middle ground usually means making compromises. But…

Not all emerging markets are created equal

Robert McConnaughey, Director of Global Research | January 27, 2014

…year on the reform front – execution of the Chinese reforms are obviously on the market’s mind, but presidential elections in India, Brazil, South Africa, Indonesia, Turkey and possibly Thailand have the potential to increase volatility, but also open a window for reforms to gain momentum if the ruling party wins with a strong mandate. On the point of reforms, abundance and hope of continued growth seem to have bred complacency in many countries….