The Case for a Flexible Approach to Investing

02 mins 18 secs

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In investing, when everyone does something a certain way, it gets very competitive and it leaves opportunities for the people that do it differently.

Investing across the capital spectrum can provide interesting opportunities because no company's capital structure is quite like another. So in some companies, it might be very risky to buy an equity but that same company might have a bond that's below par and offers somewhat of an equity-like return with income or might have a convertible security.

So the flexibility to move across a cap structure allows an investor to identify their risk preference point and focus on that.

But within that risk budget, I might want to be exposed to biotechnology, or I might want to be exposed SaaS, or self-driving automobiles, or something. And you'd say, "Well, you can't be exposed to that because you're a conservative investor. You can't own those stocks." But it's not a question of stocks, it's a question of investing.

There's a different way to do it which is to say, "Well, let's just look for an outcome. Let's look for a very satisfactory current yield with some capital appreciation," and rather than saying, "We're going to find that in an equity, we're going to find that in a convertible, we're going to find that in a bond," we're just looking for the outcome and we find it where it is.

And we select securities on a bottom-up basis using research. Our approach is definitely the different approach of saying, we don't necessarily care whether it's a stock, or a bond, or a convert, or a preferred, or an MLP, or a REIT, if it's an income-generating security with capital appreciation, we'll examine it.

And therefore, we're ruling out super-risky equities with no dividend, we're ruling out super boring bonds that are definitely going to pay you your 3% and that's it, because we'd like to do a little better than that, and focusing on everything in the middle, and not worrying about what it's defined as but just worrying about what it's going to do for you.

The views expressed are as of December 2018, may change as market or other conditions change and may differ from views expressed by other Columbia Management Investment Advisers, LLC (CMIA) associates or affiliates. Actual investments or investment decisions made by CMIA and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be suitable for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either. Since economic and market conditions change frequently, there can be no assurance that the trends described here will continue or that any forecasts are accurate.

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Investing across the capital spectrum provides interesting opportunities, says senior portfolio manager David King. A flexible strategy can pursue an outcome rather than just looking for stocks or looking for bonds.

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