AGGH - Can Bond Investors Outperform The Aggregate Bond Index?

2024-01-22 22:49:00 ET

Summary

• Active management within fixed income is incredibly compelling, while active management in equities has failed to deliver.
• On the equity side, indexes are hard for active managers to beat because the weighting of each stock is determined by the collective wisdom of the market.
• An important step in managing the Treasury futures exposure is optimizing the cash collateral.

With decades of both passive and active fund performance now in the rearview mirror, the results are unequivocal: active management within fixed income is incredibly compelling, while active management in equities has failed to deliver.

Let's start by checking the scoreboard, shown in Figure 1. We see a very high percentage of actively managed fixed-income mutual funds were able to beat their benchmark over the past decade (last column), between 60% and 93%, depending on the asset class. On the opposite side of the spectrum are equity mutual funds, where only a small number of active funds outperformed their benchmark over the trailing decade, between 11% and 21%, depending on the asset class....

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