How to Construct a Long-Only Multifactor Credit Portfolio?

The Journal of Fixed Income, forthcoming

31 Pages Posted: 5 Apr 2024 Last revised: 28 Jan 2025

See all articles by Joris Blonk

Joris Blonk

Robeco Institutional Asset Management

Philip Messow

Robeco Institutional Asset Management

Date Written: January 15, 2025

Abstract

This paper examines how to combine single factors into a multifactor portfolio of corporate bonds. The two most common approaches in the literature are the so-called ‘integrated’ and ‘mixing’ approaches. This paper analyzes these two methods in corporate bond markets, and finds that the integrated factor portfolios generally lead to higher risk-adjusted returns. This is largely due to the fact that they do not invest in underperforming bonds that score poorly on a single factor, to which the ‘mixing’ approach is exposed to. Our results are robust over time and hold in different macro environments and in both Investment Grade and High Yield markets.

Keywords: Asset management, portfolio management, portfolio construction, factor investing

JEL Classification: G11, G12, G14

Suggested Citation

Blonk, Joris and Messow, Philip, How to Construct a Long-Only Multifactor Credit Portfolio? (January 15, 2025). The Journal of Fixed Income, forthcoming, Available at SSRN: https://ssrn.com/abstract=4775767 or http://dx.doi.org/10.2139/ssrn.4775767

Joris Blonk

Robeco Institutional Asset Management ( email )

Rotterdam, 3011 AG
Netherlands

Philip Messow (Contact Author)

Robeco Institutional Asset Management ( email )

Rotterdam, 3011 AG
Netherlands

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