Perspectives Blog

The secret to managing pension plan risk

Frank Salem, Senior Portfolio Manager | February 10, 2014

…hen plan assets are not aligned with the liability the funded status will be highly volatile. While equity holdings and other risk assets are useful for underfunded plans to improve their funded status, they have little or no correlation to the liability discount rate and are an added source of risk to the plan’s funded status. The widespread improvement in funded status makes now an opportune time for pension plans to reduce risk. Over the past…

Another look at disability and labor force participation

Zach Pandl, Portfolio Manager and Strategist | April 7, 2014

…using subjective criteria”. 3. Weak economy. DI and SSI make up a part of the nation’s social safety net (see Burkhauser et al (2013)), and just like other social programs, demand tends to rise during economic downturns. The correlation between DI applications and the unemployment rate is evident in the data (Figure 2), but there is also a large body of research more carefully demonstrating the cause/effect relationship—such as Black et al (2002…

Predicting new drug sales is more art than science

Harlan Sonderling, CFA, Senior Healthcare Analyst | April 14, 2014

…e sales were $70 million, an expensive disappointment. A study by Citi Research concluded that over two-thirds of recent novel drug launches have failed to meet analysts’ first-year launch estimates and that there is a strong correlation between first-year and subsequent launch performance. Citi found that of launches exceeding first-year sales forecasts, 65% and 53% exceeded them in years 2 and 3, respectively. Of launches that missed first-year…

Special report – Commodity markets outlook

Columbia Management, Investment Team | July 21, 2014

…ion against higher inflation, to hedge against geopolitical risk and to provide diversification. In the latter respect, now that we are moving towards the end of quantitative easing, we have seen a significant decrease in the correlation of commodities to other risk assets and thus it is becoming clear once again that commodities are uncorrelated with equities and negatively correlated with bonds.   Disclosure Commodity investments may be af…

January asset allocation update

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

…ain neutral on EM equities. We continue to recommend adding non-traditional diversifiers, like absolute return strategies and liquid alternative strategies. Strategies like these that are designed for positive returns and low correlation to major asset classes are particularly attractive when the power of bonds to diversify is weakening. Lastly, we recommend that investors embrace the idea of asset allocation flexibility and prepare to reduce equ…

When the QE tide recedes, focus on what is revealed

Robert McConnaughey, Director of Global Research | January 6, 2014

…ile we may be seeing some “green shoots” of overall growth pick-up in the developed world, the post-crisis recovery in asset values has not been primarily driven by economic or earnings growth. Instead, we have been in a high correlation environment where the rising tide lifted most diversified investor boats as repressed “risk-free” rates pushed money out into riskier asset classes. While central bank support of a still fragile global economy is…

Q&A with Jeff Knight

Jeffrey Knight, CFA, Global Head of Investment Solutions and Asset Allocation | January 6, 2014

…I think it still offers opportunity for return, but not if we organize our portfolios entirely to be about whether rates go up or down. The other reason for owning bonds is diversification, but we have to pay attention to how correlations are moving between bonds and other risky assets, particularly stocks. Since last summer, we’ve seen a much closer positive correlation between the returns to bonds and the returns to equities, meaning you&…