FYI: Just like they’ve done with equities, bond investors are increasingly replacing their active managers with factor-based funds. But fundamental credit managers may still have a bit of a lock on one factor: managing duration risk.
Duration risk has increased exponentially as interest rates have gone negative in some regions of the world and reached historical lows in the U.S. With active managers under threat not just from traditional index funds, but also rules-based products designed to systematically capture characteristics like value or growth, duration risk — which has proven tricker to program into an algorithm — may be “the last domain of alpha in bonds,” according to Stephen Scott, partner at Duration Capital. The firm provides research on duration management and has built duration models for the U.S., U.K., Germany, and Japan.
Regards,
Ted
https://www.institutionalinvestor.com/article/b1gtjpc8pb6hl6/The-Last-Domain-of-Active-Bond-Managers
