Perspectives Blog

Duration for diversification

Columbia Management, Investment Team | November 19, 2013

…500 Index and 79% of the portfolio in Treasuries. The portfolio would have had an annualized return of 7.5% and volatility of 5.4% — lower volatility than Treasuries with higher returns. Today a portfolio like this would have a duration of 6.2 years (calculated as the 79% Treasury share times its 7.78 year duration). When interest rates are likely to rise and the distribution of expected Treasury returns shifts lower (as shown in Exhibit 1), th…

To infinity and beyond!

Colin Moore, Global Chief Investment Officer | October 13, 2014

…imit on an infinite policy and what lies beyond its expiration? Transition points are often the source of market volatility as the certainty of the previous focus is replaced by the uncertainty of the new focus. In addition to increased volatility, we may also experience a correction, loosely defined as a drop in major indices of at least 10%. While volatility and corrections are unpleasant, they can motivate investors to focus less on QE (an ext…

The importance of taking a long-term perspective

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

…part of our investment process. These expectations can help us to make rational decisions in the face of market volatility. The research that underpins these forecasts, meanwhile, helps us to distinguish temporary trading volatility from more significant fundamental changes that could alter our longer term assessments. So far, market volatility in 2014 has not changed our outlook for the major drivers of our strategic forecasts, like economic gr…

Not all emerging markets are created equal

Robert McConnaughey, Director of Global Research | January 27, 2014

We see emerging markets shifting from an environment of common thematic tailwinds to one of more idiosyncratic outcomes We believe that painting all emerging markets with a broad brush is a mistake We examine some of the key factors in uncovering EM investment opportunities Emerging markets (EM) is a term given to a universe of countries that is extremely diverse across a wide number of variables including geography, levels of industrializatio…

Hungry for income? High yield munis could be your meal ticket

Chad Farrington, CFA, Head of Municipal Bond Credit Research and Senior Portfolio Manager | May 28, 2014

High yield muni bonds represent an attractive investment opportunity Professional money managers can help with the intricacies of the high yield muni space Current income and potential tax advantages in the high yield space Attractive yields, potential for price appreciation Many investors are concerned about the prospect of rising interest rates and the impact higher rates may have on bonds, especially since we’ve been in a very low rate envi…

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…

Q2 fixed income outlook – Hitting for the cycle

Gene Tannuzzo, CFA, Senior Portfolio Manager | March 31, 2014

We have started to reduce exposure to high-quality bonds with limited upside potential and high-yield bonds in which credit risk appears too aggressive. Following weakness last year, emerging market debt has posted gains this year, and we expect further strength ahead as volatility subsides. While we expect a flatter yield curve over the next few months as investors focus on the timing and pace of rate increases, we don’t think they should avoi…