Perspectives Blog

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…

Understanding the power of alpha

Matt Scales, CFA, Head of Product Development and Strategy | January 27, 2014

…sell 1000 Index manager with a stand-alone, simulated alpha. For the purposes of our example, let’s say our simulated alpha offers similar characteristics to our active U.S. equity manager’s alpha. Similar return pattern — or correlation — relative to other asset classes and similar ratio of return to active risk. However, our simulated alpha is modeled at 12% volatility instead of the 3% tracking error relative to the benchmark realized by the a…

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…

Gimme credit

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | August 22, 2013

…e—which have remained very sub-par. Consumer credit has had little impact on the current recovery. Over 90% of the current cycle consumption growth is explained by growth in incomes and wages, well north of the 60% historical correlation seen in the prior 25 years. After 1980, consumers’ access to credit was vastly expanded and this fueled consumer spending power well ahead of wage growth. Consumers used credit cards freely, and when these maxed…

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…