Columbia Management today announced the launch of Columbia Risk Allocation Fund (CRAAX), an open-end fund focused on allocating risk, rather than capital, that seeks to generate consistent returns over time.
In a traditional balanced fund with an allocation of 60 percent stocks and 40 percent bonds, stocks can account for nearly 90 percent of the portfolio’s volatility, explained Colin Moore, chief investment officer. Columbia Risk Allocation Fund seeks a different risk/return profile by allocating similar amounts of risk (measured as expected volatility) across stocks, fixed income securities and inflation-hedging assets. The ultimate goal is to mitigate risk concentration in any single asset class, which should allow the Fund to generate attractive returns over time with less risk.
“A growing number of financial advisors have begun to acknowledge that the conventional balanced portfolio is not truly diversified,” said Mr. Moore. “Our process seeks to ensure diversification by balancing risk across asset classes that may respond differently under various economic and market environments.”
Mr. Moore added that the fund is designed to provide a more consistent investment experience throughout the different phases of the economic cycle, which is a departure from traditional balanced portfolios whose outcome is largely determined by the direction of equity markets. While this fund may underperform a traditional balanced portfolio during equity bull markets, Columbia Management believes a risk-balancing approach can provide similar types of returns without subjecting investors to extremes in market volatility.Columbia Risk Allocation Fund is managed by Todd White (lead PM) and co-managers Anwiti Bahuguna, Ph.D., Fred Copper, CFA, Kent Peterson, Ph.D., and Beth Vanney, CFA. About Columbia Management:Columbia Management is the eighth largest manager of long-term mutual fund assets with $344 billion under management as of March 31, 2012. Columbia Management is a subsidiary of Ameriprise Financial, Inc. (NYSE: AMP). For more information please visit columbiamangement.com. Investors should consider the investment objectives, risks, charges and expenses of the funds carefully before investing. The prospectus, which contains this and other information about the funds, should be read carefully before investing. Please visit columbiamanagement.com for a free prospectus. The prospectus should be read carefully before investing. The Columbia Risk Allocation Fund may invest in equity securities, fixed income securities and derivative instruments. The Fund may utilize significant amounts of leverage. Leveraging exposes the Fund to greater risks due to unanticipated market movements, which may magnify losses and increase volatility of returns. There is no assurance that a leveraging strategy will be successful. The Fund uses asset and risk allocation strategies, which may rely on quantitative methods. There can be no assurance that these strategies and methods will be successful or enable the Fund to achieve its objective and their use may cause the Fund to perform differently from the market as a whole. The Fund is non-diversified, and may be more exposed to the risks of loss and volatility than a fund that invests more broadly. The Fund may take short positions, primarily for hedging purposes. This may involve selling a security the Fund does not own in anticipation that the security’s price will decline. Short positions introduce more risk than long positions, and use of short sales in effect “leverages” the Fund. The Fund and certain underlying Funds may invest in illiquid securities and there is a risk that the Fund or underlying Funds may not be able to sell such securities at an opportune time without adversely affecting their price. Additional risks associated with an investment in the Fund include but are not limited to market, commodity-related, convertible securities, derivatives, foreign securities, and frequent trading risk. The market value of securities may fall or fail to rise. Market risk may affect a single issuer, sector of the economy, industry, or the market as a whole. The market value of securities may fluctuate, sometimes rapidly and unpredictably. Exposure to commodities and commodities markets may subject the Fund to greater volatility than investments in traditional securities. The use of derivatives introduces risks possibly greater than the risks associated with investing directly in the investments underlying the derivatives. A relatively small price movement in an underlying investment may result in a substantial gain or loss. Investments in foreign securities involve certain risks not associated with investments in U.S. companies, including political, regulatory, economic, social, and other conditions or events occurring in the particular country, as well as fluctuations in its currency and the risks associated with less developed custody and settlement practices. Risks are particularly significant in emerging markets. There are risks associated with fixed income investments, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is more pronounced for longer-term securities. Non-investment grade securities, commonly called “high-yield” or “junk” bonds, have more volatile prices and carry more risk to principal and income than investment grade securities. See the prospectus for more information on these and other risks associated with the Fund.