Active Fixed Income Illusions
Journal
Journal of Fixed Income
Subject
Accounting
Publishing details
Authors / Editors
Brooks J;Gould T;Richardson S
Biographies
Publication Year
2020
Abstract
Over the past 20 years, active fixed income (FI) managers have tended to deliver returns in excess of their benchmarks. This has generated a popular notion that active investing in fixed income markets is “easy.” The aim here is to assess the veracity of that notion. Across a broad set of popular active FI categories, this article finds that passive exposures to traditional risk premia (especially exposure to credit risk) explain the majority of FI manager active returns. The resulting implication is that, contrary to popular belief, traditional discretionary active FI strategies offer little in the way of true alpha and that traditional active FI strategies may significantly reduce the strategic diversification benefit of FI as an asset class.
Keywords
Fixed income and structured finance; performance measurement; fixed-income portfolio management
Available on ECCH
No
