Perspectives Blog

In the land of 7 footers, 6’8″ plays guard

Fred Copper, Senior Portfolio Manager | May 5, 2014

The expected real return on most “safe haven” assets is currently negative. Risk seeking behavior could result in a bubble encompassing all risky assets. While current indicators support a pro risk stance, we are prepared to change our positioning as market conditions dictate. There is a great deal of discussion currently about the likely emergence of asset bubbles in capital markets driven by hyper-stimulative central bank policy. However, we…

Holding multiple investments does not ensure better diversification

Columbia Management, Investment Team | April 23, 2014

The degree of risk reduction benefit in diversification depends directly upon the correlation of the portfolio’s assets. Adding just one zero-correlated asset to a portfolio reduces risk 29.5%, while adding a thousand 66%-correlated assets reduces risk by only 19%. Well-designed absolute return products can be meaningful additions to traditional allocations, substantially enhancing diversification. By Todd White, Head of Alternative Investment…

A port in the storm — Short muni funds can offer refuge in the face of rising rates

Catherine Stienstra, Senior Portfolio Manager | October 2, 2014

…asis points, short fund managers have the opportunity to increase income without materially adding interest rate risk. While the duration risk may be greater when compared to a money market fund, we believe that the overall benefits — higher yield and investment flexibility — of a short muni fund may provide investors with an attractive investment option, especially when considering the opportunity cost of holding cash or investing in a money mar…

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…

The secret to managing pension plan risk

Frank Salem, Senior Portfolio Manager | February 10, 2014

…ts 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 10 years, a g…

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

…, we can’t completely rule out a future default or debt restructuring of some sort. Q: Is Puerto Rico a systemic risk for the market? A: We think Puerto Rico is a potential systemic market risk. PR is one of the largest issuers in the municipal market with more than $70 billion in outstanding debt across its issuing bodies (not including unfunded pension liabilities) and is widely held. By comparison, Detroit has less than $8 billion in outstandi…

Q&A with Jeff Knight

Jeffrey Knight, CFA, Global Head of Investment Solutions and Asset Allocation | November 10, 2014

…t last month. This view also aligns with our market state classification which currently suggests a more neutral risk-balanced portfolio allocation. Q: Are investors being adequately compensated for taking risk? A: In order to find any returns that are meaningful enough to help solve financial problems, you have to go out on the risk curve. And the overall pattern that we would expect is for that curve to flatten as investors take the bait, if yo…