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FT Article: You Get What You Pay for with Fixed Income

FT Article: You Get What You Pay for with Fixed Income

November 28, 2022

“The case for active bond management is supported by its outperformance, net of fees, versus indices and passive strategies.” So writes Ellen Carr in a recent opinion piece in the Financial Times.

Carr a bond portfolio manager at Barksdale Investment Management, points out that 75% of core bond managers are outperforming the Bloomberg Aggregate Index over the past 5 years, net of fees. She cited data from PSN, a data provider that looks at separately managed accounts (SMAs).

Carr then pivoted into looking into some of the reasons why, writing that:

  • Achieving true indexation is nearly impossible in the fixed-income world, due to both the volume of bond issues in the Bloomberg Aggregate Index and the “challenges of trading corporate bonds privately between counterparties”
  • Indices overweight issuers with the most debt, which are often lower quality companies. A passive strategy would then likely own more of these companies as they must follow the index
  • Active managers can overweight treasuries, mortgage-backed securities, and higher yielding corporates accordingly, an option not available to passive strategies.

Taking all this data into consideration, Carr’s conclusion is that “active fixed-income strategies are worth the fees they charge.”

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