Perspectives Blog

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…

Trouble in paradise: Q&A about Puerto Rico bonds

Chad Farrington, CFA, Head of Municipal Bond Credit Research and Senior Portfolio Manager | 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…

The case for active bond management

Carl Pappo, Head of Core Fixed Income | August 25, 2014

…tfolio, rather than building a portfolio of individual bonds, mutual funds offer a wide array of strategies. Of course, when selecting any mutual fund, investors must consider the various asset classes, investment objectives, risk profiles and tax implications among other key factors. A critical decision investors must make is choosing between actively managed and passively managed funds. There is currently $2.9 trillion invested in taxable bond…

The case for active muni management

Kimberly Campbell, Senior Portfolio Manager | April 21, 2014

…s, tax-exempt income and low investment costs. Passive strategies seek to mirror the chosen index, in make-up and performance, via a mechanical investment process, without regard to valuation, portfolio positioning, research, risk management or market environment. Investors should be aware that, unlike passive equity funds that may use a full replication strategy, passive municipal strategies may find it extremely difficult to fully replicate the…

The perils and pitfalls of buying individual municipal bonds

James Dearborn, Head of Municipal Bonds | February 27, 2014

Volatile ratings leave retail investors at risk Retail investors could pay higher prices Deck is stacked against retail investors With an increasing focus on the benefits of owning municipal bonds — attractive after-tax yields, low historical default rates and relatively low volatility — investors are again considering purchasing individual muni bonds. But the deck may be stacked against the retail investor. The allure of owning individual bon…

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

Columbia Management Municipal Investment Team, | September 30, 2013

…logies. Are the rating agencies shifting the goalposts (again)? There are many types of municipal bonds offering a wide disparity of credit quality and commensurate yield levels to compensate for the various degrees of credit risk. Responsible investment practice requires an appropriate assessment of credit risk and ensuring adequate yield compensation for the level of credit risk taken with any investment purchase. For example, it would not be p…

Duration for diversification

Columbia Management, Investment Team | November 19, 2013

Many investors struggle to determine the appropriate amount of bond duration in an environment of rising interest rates. The right amount of duration has to be considered in a portfolio context, because the main value of duration exposure comes through diversification. Because of the negative correlation between duration and the returns of riskier assets, high-quality fixed income will still be a cornerstone of any disciplined portfolio. By Za…