Financial Education

Active management strategies seek to add value by earning a higher return than their benchmark index. In fixed income portfolios there are two primary approaches to active management:

Large Risk Factor Mismatches

This strategy takes deliberate and sometimes sizable mismatches on risk factors other than duration, including credit spreads, yield curve and sector exposure. The goal is to earn more than enough additional return to compensate for the higher transaction costs.

Full Blown Active Management

Full blown active approaches seek only return maximization. They will accept large mismatches on any risk factor, including duration, in order to add value relative to the index.

For more information, see all articles on: Active Management, Fixed income investments, Investing in bonds, Portfolio Management

See also:

Criteria For Selecting a Fixed Income Index

Performance Attribution for Fixed Income Managers

Types of Risk in Equity Portfolio Management

Fundamental Law of Active Management

Approaches to Equity Investment