Value of Security Selection Versus Asset Allocation in Credit Markets
Posted: 4 Sep 2018
Date Written: July 1, 1999
Fixed income investors attempt to outperform their benchmarks by expression views on yield curve allocations, sector and quality allocations and security selection. This article presents a quantitative study based on a perfect foresight world assumption of the relative merits of the various forms of fixed income research as applied to portfolio management. The conclusions could help investors to define a successful strategy for credit investing in indexed portfolios. In the article the authors draw the conclusion that an index-matched strategy based on security selection within each market cell is the most risk-efficient path to index outperformance in a perfect foresight world.
Keywords: Perfect Foresight, Security Selection, Asset Allocation, Credits, Corporate Bonds, Credit Selection, Portfolio Choice, Investment Decisions, Information and Market Efficiency
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