The Future of Fixed Income Is Systematic

In an environment in which major central banks are preparing to lower interest rates and economic growth has helped to keep corporate credit fundamentals healthy, investors are aiming to benefit from the income generation and diversification that a fixed income allocation can offer. However, the close connection between bond performance and macroeconomic trends, the widely varied performance among fixed income sectors over certain periods, and the uncertain futures of inflation and policy rates all illustrate that the fixed income market is nuanced, and which fixed income sector is preferable may vary over time. As a result, flexibility and tailoring of fixed income allocations are needed. This article provides the author's perspective on the reasons a tailored approach can benefit fixed income investors. In addition, it articulates why systematic active fixed income investment style can provide significant benefits to investors, such as consistent signal-driven excess returns, a diversifying return profile compared with active fundamental managers, and a clear and transparent process.