Perspectives Blog

Q3 fixed income outlook – The demise of volatility

Gene Tannuzzo, CFA, Senior Portfolio Manager | June 30, 2014

Because yield is an important driver of returns, we believe investors may be better served staying invested rather than sitting in cash or taking a decisively negative position on bonds. History has shown that volatility can stay low for extended periods. In that case, we would expect credit sensitive assets to continue to generate reasonable returns. While we think investors should retain exposure in the bond market, it is important to be flex…

From tactical to core – The case for emerging market debt

Columbia Management, Investment Team | June 2, 2014

…atrick McConnell, Director, Fixed Income Product Management and James Waters, Client Portfolio Manager, Fixed Income A dominant theme over the past few years has been the search for yield, particularly when accompanied by low volatility. Given the meager return on cash, investors have been moving into credit in search of additional returns and into asset classes with perceived levels of low volatility. Corporate credit spreads have tightened stea…

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…

Thoughts on navigating market volatility in today’s technology markets

Rahul Narang, Senior Portfolio Manager | April 28, 2014

…e long side and value exposure on the short side; 5) benchmark-chasing rotation into mega-cap “old tech” stocks; and 6) a heavy increase in supply from IPOs and secondary offerings. As investors try to sort through the recent volatility and accompanying headline noise, it might be a good time to review some core principles that are relevant during such periods. 1. Stay diversified. The technology universe is a very broad space. We have a mixture…

Volatility and Goodhart’s Law

Zach Pandl, Portfolio Manager and Strategist | May 21, 2014

Markets are starting to make understandable inference that Fed officials see a fixed timeline for rate hikes. Implied volatility is low because perceived policy uncertainty is low. We remain focused on modest slack and sturdy growth. Recent Fed communication brings to mind Goodhart’s Law: “When a measure becomes a target, it ceases to be a good measure.” In a speech Tuesday, New York Fed President Dudley noted that Eurodollar futures are prici…

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…

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…