At a time of increasing challenges for fixed income managers, the role of index strategies is gaining importance. Investors are searching high, low and into exotics to extract yield out of the rate-starved environment. Money has flowed toward the best and brightest fixed income active managers on the premise that they would be able to beat or avert the perils of a rising interest rate environment.
The performance of actively managed bond funds this summer shows just how hard it is to beat the market.
Percentage of active bond managers that underperformed in recent rising-rate episodes
A recent article highlights the findings of a long-term study** that shows a majority of actively managed bond funds, on average, have failed to outperform a relevant benchmark.
For advisors who may be jumping through hoops to manage the duration of their clients’ portfolios, the question you must ask yourself is: If even the best active bond managers in the industry can’t beat the market, is your time best spent trying to manage your clients’ duration? Or is it better spent growing your business and strengthening relationships with your clients? We think you know the answer.
For additional bond insights please see the tweet below:
Should you sell bonds and buy stocks? We give 4 reasons to resist the great rotation. vgi.vg/18SXtcm—
Vanguard (@Vanguard_FA) September 11, 2013
**Philips, Christopher B., and David J. Walker, 2011. Rising rates: A case for active bond investing? Valley Forge, Pa.: The Vanguard Group.
All investing is subject to risk, including possible loss of principal.
Bond funds are subject to the risk that an issuer will fail to make payments on time and that bond prices will decline because of rising interest rates or negative perceptions of an issuer’s ability to make payments.