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Alternative Thinking

The Illusion of Active Fixed Income Alpha

Do fixed income (FI) managers generate alpha? We take a deep dive into the determinants of excess of benchmark returns for a broad set of popular active FI categories.

Alternative Thinking

The Illusion of Active Fixed Income Diversification

We examine popular active fixed income categories and find that a persistent overweight to high yield credit explains the majority of fixed-income managers’ active returns. We then discuss some key implications for asset owners.

Perspective

Fixed Income Fantasies

Active fixed income managers have had a really good run in recent decades, but is this success due to skill? We found that there is less alpha than people think due to long-term overweight to credit. But there is hope, and we explain why.

Perspective

Repurchases are the Devil’s Work! (not…)

A seemingly large amount of stock buybacks in recent years has prompted many to claim that buybacks have come at the expense of new investment. Our latest paper shows why neither the theory nor the evidence supports this view.

Alternative Thinking

Style Premia / Bond Returns

We review how style premia have historically generated attractive long-run returns in virtually every place we have studied them, and may help reduce risk through better diversification. We then look at fixed income returns in different environments

Data Set

Credit Risk Premium: Preliminary Paper Data

This data set is related to “Credit Risk Premium: Its Existence and Implications for Asset Allocation." Using data from both cash bond markets (1927–2014) and synthetic CDS markets (2004–2014), we document evidence of a sizable credit risk premium.

Systematic Fixed Income: Introduction

Systematic fixed income takes a rigorous, repeatable approach to investing in bonds.

Book

The Valuation of PAC Bonds Without Complex Models

Using static yields on mortgage securities is insufficient to make good investment choices. We present a simple model that can be useful in identifying value across at least one popular class of CMO securities: the Planned Amortization Class bond.

Book

Fundamental Differences Between Agency and Non-Agency Mortgage-Backed Securities

There are many differences between agency and non-agency mortgage-backed securities, which can affect our opinion about their relative value and risk. This chapter explains and illustrates these differences using a simple example.

Book

Forward Rates and CMO Portfolio Management

Forward rates, because of their perceived role in forecasting future interest rates, occupy a special place in fixed-income analysis. We focus on how forward rates are used in analyzing CMOs and discuss when usage is warranted and misguided.