Active Fixed Income Illusions

27 Pages Posted: 5 Dec 2019

See all articles by Jordan Brooks

Jordan Brooks

AQR Capital Management, LLC

Tony Gould

affiliation not provided to SSRN

Scott A. Richardson

AQR Capital Management, LLC; London Business School

Date Written: November 19, 2019

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’. Our aim is to assess the veracity of that notion. Across a broad set of popular active FI categories, we find 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 funds, fixed income allocation

JEL Classification: G12; G14; M41

Suggested Citation

Brooks, Jordan and Gould, Tony and Richardson, Scott Anthony, Active Fixed Income Illusions (November 19, 2019). Available at SSRN: https://ssrn.com/abstract=3489808 or http://dx.doi.org/10.2139/ssrn.3489808

Jordan Brooks

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Tony Gould

affiliation not provided to SSRN

Scott Anthony Richardson (Contact Author)

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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