Active Fixed Income May Make A Difference
Structural factors in fixed income investing may provide an advantage for actively managed strategies.
Active fixed income investors may have inherent advantages over their passive counterparts, enabling them to focus on the most compelling borrowers, not just the biggest ones. This significance may be more important as the Federal Reserve considers unwinding monetary policies that have been in place since the financial crisis of ’08-’09.
“Fixed income benchmarks may exclude a large portion of the investable universe… This may limit returns and diversification.”
There are structural factors in fixed income that may give active managers an edge
Active managers are not tied to issuance-weighted indexes, as are many passive strategies—they aren’t locked into increasing exposure to credits of potentially deteriorating quality.
Active managers make investment choices based on value and diversification—they aren’t price takers like many passive strategies that pay the current price for the present makeup of the index.
Active managers may control trading costs by buying and selling opportunistically—they aren’t forced to trade at month-end, which can lead to a higher level of turnover in some passive strategies.
ACTIVE MANAGEMENT MAY MAKE A DIFFERENCE
Morningstar US Open End Intermediate-Term Bond Funds Category versus
Bloomberg Barclays U.S. Aggregate Bond Index1 and Bloomberg Barclays U.S. Intermediate Aggregate2 Bond Index (%)
Source: Morningstar and Bloomberg, as of September 30, 2017. Fixed-income securities involve interest rate, credit, inflation, and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed-income securities falls. Tapering of the Federal Reserve Board's quantitative easing program and a general rise in interest rates may lead to increased fixed income volatility. Active management does not ensure gains or protect against market declines. Diversification does not guarantee a profit or protect against a loss. The differences between active strategies and passive strategies could significantly impact performance and the specific investment decisions of each strategy. These differences include but are not limited to investment strategy, regulatory requirements, tax implications, fees and expenses, cash flows, trading structure and transparency requirements. Median denotes the value at the midpoint of a frequency distribution of observed values. Active total returns are represented by Morningstar US Open End Intermediate-Term Bond Funds (showing all share classes), which includes no ETFs, no Fund of Funds & no Money Markets. The returns are net of fees/expenses and do not factor in any sales charges. The funds included in the Morningstar US Open End Intermediate-Term Bond Funds Category invest primarily in corporate and other investment-grade U.S. fixed-income issues and typically have durations of 3.5 to 6.0 years. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment. Outperformance does not imply positive results.
1 The Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index that measures the performance of the investment grade universe of bonds issued in the United States. The index includes institutionally traded U.S. Treasury, government sponsored, mortgage and corporate securities.
2 The Bloomberg Barclays U.S. Intermedaite Aggregate Bond Index is the intermediate component (maturities of up to ten years) of the Bloomberg Barclays U.S. Aggregate Index.
Duration measures the sensitivity of price (the value of principal) of a fixed-income investment to a change in interest rates. The higher the duration number, the more sensitive a fixed-income investment will be to interest rate changes.
WHEN THE QUESTION IS FIXED, CONSIDER ACTIVE
IMPORTANT INFORMATION: Past performance is no guarantee of future results. Performance shown excludes sales charges, if any. Had sale charges been included, performance would be lower. Daily Change($) indicates change in the Net Asset Value (NAV) from the previous business day. All investments involve risk, including loss of principal. Please see each product’s web page for specific details regarding investment objective, risks, performance and other important information. Review this information carefully before you make any investment decision. Additional share classes and products may be available.
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IMPORTANT INFORMATION: All investments involve risk, including loss of principal. Past performance is no guarantee of future results. Please see each product’s web page for specific details regarding investment objective, risks, performance and other important information. Review this information carefully before you make any investment decision.
Carefully consider a fund’s investment objectives, risks, charges and expenses before investing. Please view the prospectus or summary prospectus for this and other information. Read it carefully.
FINANCIAL ADVISORS: Please note that not all share classes may be available for sale at your firm. Please call the Legg Mason Sales Desk 1-800-822-5544 or your Legg Mason Sales contact for more information.
Outperformance does not imply positive results.
Yields and dividends represent past performance and there is no guarantee they will continue to be paid.
Diversification does not guarantee a profit or protect against loss.
Active management does not ensure gains or protect against market declines.