Why Active in Fixed Income?
Active managers seek to mitigate credit risk, rate risks, and debt concentration in ways that passive strategies cannot.
Fixed income investing is a complicated topic. It requires professional investment management with a manager who is considering risk management, diversification, and ultimately bringing a dynamic multidisciplinary toolkit to the table to recognize the alpha opportunities at different points in a market cycle or a credit cycle.
In today's fixed income world with low interest rates, limited dispersion, and arguably lower expectations for future performance, in our opinion, the generation of alpha has never been more important to our client base for their needs, for their solutions, for their outcomes
Active investment strategies at their core are designed to generate alpha. When I think about passive investment strategies, whether it's fixed income or equity, their design is only meant to replicate market performance. It doesn't bring alpha to the table.
As a passive investor to a US agg based index, you are increasingly taking higher levels of duration exposure, i.e., higher levels of interest rate exposure, as well as a significantly higher level of exposure to the US treasury.
As active managers, we can look around the US or we can look around the globe and find the best risk-adjusted opportunities to build your portfolios with an active point of view to ultimately, we hope over time, are designed over time to lead to alpha generation.
The views expressed in this commentary are those of William J. Adams and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of any other MFS investment product.