The Bigger Picture: What's the Real Cost of Bond Investing?
Many bond investors have chosen strategies that passively track a particular index. While these investors may be attracted to the low fees, they sacrifice opportunities to outperform the index.
Key takeaways
- After fees, passive strategies that track an index underperform the benchmark.
- Global bond markets are inherently inefficient, leaving investors in passive strategies at a disadvantage.
- Passive strategies take index allocation as it is, without opportunity to take advantage of higher-paying bonds, for example, or to minimize exposure to tail events.
- Active managers with proven fundamental credit research and a robust relative-value decision framework have the potential to outperform throughout the market cycle.
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