THE VARIETY OF ASSETS, CURRENCIES AND CHARACTERISTICS OF EACH MARKET: THE MAIN CHALLENGES FOR PASSIVE MANAGEMENT IN THE BOND MARKET

According to Flossbach von Storch

  • According to the research, active fund managers can exploit these sources of performance and outperform the most important benchmark indices during longer investment periods.
  • Among its conclusions, the report states that it is not so important that it is an active or passive management as the manager has a consistent strategy.

The discussion on active management versus passive management has intensified during the last year given the high demand that indexed products have generated among investors and the volume of investment they have captured. However, according to a study conducted by Agnieszka Gehringer and Kai Lehmann, senior analysts at the Flossbach von Storch Research Institute, the discussion now also reaches the bond market.

The researchers point out that the debate over whether an active manager can sell to its benchmark or an ETF has been extended to bonds and, in the long term, it will over all asset classes from now on. The firm wanted to analyze the reasons why the specific characteristics of the bond market offer opportunities for asset managers, and why investors should select their funds with care.

The main conclusion of the report points out that the bond market is highly complex given its strong segmentation, currencies and the characteristics of each of the markets, in order to make a passive management. The report notes that managers of active bond funds with a flexible investment approach and with a global vision can outperform the overall market in the long term.

“This may favor inefficiencies in the pricing process. For flexible bond fund managers, this offers a variety of different sources of income. However, the complexity of the bond market also poses challenges. As our research shows, some active fund managers can exploit these sources of performance and outperform the most important benchmark indices during longer investment periods. The success rate of active managers is higher than in variable income. However, the superiority of active fund solutions should not be blindly entrusted to fixed income, but the search for managers capable of having a consistent investment strategy is also an important prerequisite, “the report states in its conclusions.

LEAVE A REPLY

Please enter your comment!
Please enter your name here