- Active fixed income managers, 89–108
- Core Plus US aggregate, 94–97
- credit long/short, 104–108
- emerging market, 102–104
- Global Aggregate benchmarked, 97–100
- for Global Unconstrained Bond funds, 100–102
- roles of, 89–94
- successful systematic strategies for, 259–272
- Active risk taking, 145–149
- Active Share, 27–28
- Agency trading, 211
- Alphas, 81
- Andreani, M., 166
- APG Asset Management, 253
- Ashmore Group PLC, 173, 177
- Asness, C., 60, 207
- Assets:
- credit‐sensitive (see Credit‐sensitive assets)
- curvature, 118–119, 128–130, 130f
- financial, pricing, 1–2
- level, 118, 126–128
- maturity bucket, 118–119
- rate‐sensitive (see Rate‐sensitive assets)
- slope, 118–119, 128–130, 129f
- Asset allocation:
- Asvanunt, A., 31, 41, 44, 52, 54, 83
- Attribution, 168–169
- Axes, 226–227
- Bad selling practices, 90
- Bank for International Settlements, 3, 4, 174
- Bank of America, 228
- Banks, central, 40–41
- Barclays Global Investors, 12
- Beta:
- completion, 207–208
- constraints, 205
- neutrality, 197
- Bhojraj, S., 248
- Bias, home, 25–27
- BlackRock, 6
- Bloomberg, 154, 220
- Bloomberg Global Aggregate Index:
- composition, 7, 8f
- market capitalization, 6–7
- performance of, 268–271
- Bloomberg Global Securitized index, 46–47
- Bonds:
- Bridgewater Associates, 251, 252
- Brooks, J., 128, 178, 185
- Budget, turnover, 204–205
- Campbell, J., 116
- Cardinal scale, of risk, 196
- Carry, 59–60
- of credit excess returns, 71
- of developed market corporate bonds, 157, 159f, 161f, 162f
- of emerging market fixed income, 181
- extension, 69, 82
- of government bonds, 123
- measuring, 62, 72–73, 76f, 79f
- Cash flows (CF), 2
- CDS (credit default swaps), 179–183, 221
- CDX, 216–217
- CEEMBI (JP Morgan Corporate Emerging Markets Index), 185
- Central banks, role of, 40–41
- Central limit order book (CLOB), 220
- CF (cash flows), 2
- CHTR, 215–216
- Cliffwater Direct Lending Index, 49
- CLOB (central limit order book), 220
- Communication, importance of, 274–275
- Complexity premium, 45–50
- Constraints:
- position size, 205–206
- trade‐size, 205
- Convexity, 20–21
- Core Plus US aggregate benchmarked managers, 94–97
- Corporate bonds, 185–186
- Correia, M., 150–151, 153–154, 168
- Correlation, 34–36
- Cost analysis, transaction, 230–231
- Country‐level sustainability, 249–251
- Covariance, 33–34
- COVID crisis, 144
- Credibility, in primary markets, 225
- Credit default swaps (CDS), 179–183, 221
- Credit indices, trading conventions and liquidity, 216–219
- Credit long/short managers:
- active return analysis, 104–108
- performance of, 264–266
- Credit migration forecasting, 151
- Credit premium, 43–45, 70–83
- Credit‐sensitive assets, 139f
- attribution with, 168–170
- correlation between equity markets and, 37
- data for, 165–166
- developed market corporate bonds (see Developed market corporate bonds)
- electronification of trading for, 219–221
- IG vs HY markets, 166–167
- liquidity of, 210–219
- and machine learning, 167–168
- maturity dimension of, 165
- size and liquidity of, 163–165
- sustainability with, 167, 235–249
- Credit spreads, 71, 83, 238
- Cremers, M., 27
- Crowding, 207
- Culture, 273–274
- Currency, for fixed income, 25
- Curvature assets, 118–119, 128–130, 130f
- D2D (distance to default), 154–156, 155f
- Data mining, 83–85
- DDSs (domestic debt securities), 4
- Debt financing, 3
- Default forecasting, 151–153, 152f
- Defensive:
- developed market corporate bonds, 157–158, 159f, 161f, 162f
- emerging market fixed income, 181–182
- with emerging markets, 132–133
- grouping, with other signals, 193
- Dekker, L., 185–186
- Developed market corporate bonds, 137–170, 141f–143f
- active risk taking within, 145–149
- extensions, 163–170
- investment themes of, 149–158
- opportunity set for, 137–145
- performance of, 158–162
- Developed market government bonds, 109–134
- extensions, 131–134
- investment opportunity set, 109–112
- investment themes with, 119–123
- level asset, 126–128
- maturity bucket assets, 118–119
- sample, 123–126
- slope and curvature asset, 128–130
- sustainability in, 251–253
- zero coupon yield and PCA, 112–119
- Diep, P., 47
- Discretionary investors, 8–12, 9f
- Distance to default (D2D), 154–156, 155f
- Diversification, 81
- benefits of, 11, 50–54
- and factor timing, 194
- and interest rates, 54–55
- international, 27
- in security selection, 159–160
- Diversification benefit:
- of fixed income investments, 50–54
- in low interest environments, 54–55
- Domestic debt securities (DDSs), 4
- Domicile of issuer, 190
- Duration, 20
- Efficiency, market, 275–277
- Eisfelt, A., 47
- Electronic trading:
- about, 219–221
- of axes, 227–228
- in primary markets, 225
- EMBIGD, see JP Morgan Emerging Market Bond Index Global Diversified
- Emerging markets, risk premiums of, 49
- Emerging market hard currency bonds, 173–186, 174f
- corporate, 185–186
- extensions, 184–186
- investment themes for, 178–182
- maturity dimension of, 184–185
- opportunity set for, 173–178
- performance of, 182–184, 266–268
- Emerging market managers:
- active return analysis, 102–104
- Emerging market sovereign bonds, 132–133
- Emissions, 251
- Environmental, social, and governance (ESG) investing, 167, 233–234. See also Sustainability
- Equity investing, 147–149
- Equity markets, risk premium in, 50
- Error, tracking, 191
- ESG investing, see Environmental, social, and governance investing
- Europe, 131–132
- Extensions:
- emerging market hard currency bonds, 184–186
- market timing, 69–70, 82–83
- Failure, 272–273
- False positive rate (FPR), 151
- Federal Funds Rate, 40
- Financial assets, pricing, 1–2
- Financing, debt, 3
- Fixed income:
- analytics for, 17–24
- currency hedging in, 25
- defined, 1–3
- Fixed income markets:
- market capitalization of, 4f, 5f
- size of, 3–8
- Ford Motor Co., 228
- Forecasting:
- FPR (false positive rate), 151
- Frazzini, A., 132–133
- G0BC index, 138
- Gibbons, Michael, 114
- Global Aggregate benchmarked managers:
- active return analysis, 97–100
- performance of, 268–270
- Global equity markets, 3
- Global Unconstrained Bond fund managers:
- active return analysis, 100–102
- performance of, 268–272
- Government bonds, 3. See also Developed market government bonds
- growth and inflation with, 52
- return source of, 32
- term premium, 38–43
- yield, 40–42
- Great Financial Crisis, 46
- Greenwich Associates, 220
- Grinold, R., 12, 202
- Grover, S., 44–45
- H0A0 (HP00) index, 138
- Hard currency, see Emerging markets
- Harries, J., 84
- HCC, 215–216
- Hedging, 25
- Hendershot, C., 44–45
- High yield (HY) corporate bonds, 137, 144
- performance of, 263–264
- and sustainability, 246
- trading convention for, 214–216
- High‐yield issuers, 16
- High‐yield markets:
- excess returns in, 81–82
- investment grade vs., 166–167
- Home bias, 25–27
- Houweling, P., 185–186
- HP00 (H0A0) index, 138
- ICE/BAML Global Government Index (W0G1), 109–110, 110f, 111f, 133
- IDSs (international debt securities), 4
- IG (investment grade) corporate bonds, 137, 144, 260–261
- Ilmanen, I., 3, 60, 130
- Inflation, 41, 52
- Information ratio, 195
- In‐sample fitting, 151
- Interest rates, 40, 54–55
- International debt securities (IDSs), 4
- International diversification, 27
- Investment Company Act (1940), 188
- Investment grade (IG) corporate bonds, 137
- credit spreads for, 144
- performance of, 260–261
- Investment grade markets, high‐yield vs., 166–167
- Investment signals, 191–199
- about, 191–193
- and active risk, 196
- converting raw data to, 61–62, 72–73
- defensive (see Defensive)
- grouping, 193
- investment choices based on, 196–199
- missing, 196–197
- mixing or integrating, 206–207
- momentum (see Momentum)
- selecting weights for, 193–195
- tracking performance and outperformance of, 68
- units for weighting, 195–196
- value (see Value)
- Investors, discretionary, 8–10
- Israel, R., 130, 149, 156, 158, 205
- Issue concession, 221–224
- Issuers:
- domicile of, 190
- high‐yield, 16
- private, 190
- ITraxx, 216–217
- JP Morgan Corporate Emerging Markets Index (CEEMBI), 185
- JP Morgan Emerging Market Bond Index Global Diversified (EMBIGD), 174–177, 175f–177f
- JP Morgan Government Bond Index (GBI), 145
- Kahn, R., 202
- Kang, J., 168
- Kealhofer, S., 154
- Kessler, S., 84
- Key rate durations, 30–31
- Kizer, J., 44–45
- Kwan, S. H., 156
- Lee, R., 130
- Level assets, 118, 126–128
- LGD (loss given default), 148
- Liquidity, 209–231
- active fixed income managers role with, 92
- challenges of, 209–210
- of credit‐sensitive assets, 163, 210–219
- in investment process, 189
- limited, in fixed income, 6
- in primary markets, 221–225
- in secondary markets, 226–228
- and substitutions, 228–229
- sustainable, 228
- and transaction cost analysis, 230–231
- LiquidNet, 220
- Lo, A., 116
- Lok, S., 148
- Long duration corporate bonds, performance of, 261–263
- Loss given default (LGD), 148
- Machine learning, 167–168
- MacKinlay, C., 116
- Macroeconomic theory, 41
- Maloney, T., 60
- Managers:
- MarketAxess, 220
- Market‐capitalization weighting, 133–134
- Market segmentation, 166–167
- Market timing:
- credit premium, 70–83
- data for, 60–62, 72–73
- extensions, 69–70, 82–83
- framework for, 57–60, 70–72
- scatter plots to assess, 62–67, 73–81
- skill in, 67–68, 81–82
- term premium, 57–70
- Maturity:
- of emerging market hard currency bonds, 184–185
- remaining time to, 190
- Maturity bucket assets, 118–119
- Memory, and data mining, 85
- Momentum:
- and credit spreads, 71
- of developed market corporate bonds, 156–157, 159f, 161f, 162f
- of emerging market fixed income, 180–181
- example, 197–199
- extension, 69, 82
- of government bonds, 122
- grouping, with other signals, 193
- measuring, 60–62, 72–73, 75f, 78f
- Moskowitz, T., 128, 130
- Muskens, F., 185–186
- Neutrality, of investment signals, 197
- New York Fed, 211
- Opportunity set, for emerging market hard currency bonds, 173–178
- Optimal weight analysis, 54
- Ordinal scale, of risk, 196
- Out‐of‐benchmark tilts, 91–92
- Palhares, D., 104, 149, 156, 158, 163–164, 166, 205, 275
- PCA (principal component analysis), 112–113
- Pedersen, L., 132–133
- Performance:
- of Bloomberg Global Aggregate Index, 268–271
- of credit long/short managers, 264–266
- of developed market corporate bonds, 158–162
- of emerging market hard currency bonds, 182–184, 266–268
- of Global Aggregate benchmarked managers, 268–270
- of Global Unconstrained Bond fund managers, 268–272
- of high‐yield corporate bonds, 263–264
- of investment grade corporate bonds, 260–261
- as investment signal, 68, 194
- sustainability improving, 236–237
- Petajisto, A., 27
- Portfolio construction process, 187–208
- beta completion, 207–208
- constraints, 205–206
- and crowding, 207
- and expected returns, 191–199
- investment choices in, 187–191
- objective function, 200–202
- rebalancing, 204–205
- risk modeling, 203–204
- signals integrated in, 206–207
- sustainability in, 243–247
- units in, 202–203
- Portfolio managers, 10–11
- Position size constraints, 205–206
- Prepayment premium, 45–50
- Prepayment risk, 47–48
- Pricing, security, 2
- Primary markets:
- liquidity in, 221–225
- mechanics of, 224–225
- Principal component analysis (PCA), 112–113
- Private issuers, 190
- Private markets, risk premiums of, 49
- Project Neptune, 228
- Rate‐sensitive assets:
- Rebalancing, 204–205
- Regression coefficient, 44
- Remaining time to maturity, 190
- Returns:
- active fixed income managers, 93–100
- calculating, 30
- drivers of, 29–36
- rate portion of, 30–32
- spread portion of, 30–32
- Reuters, 154
- Richardson, S., 31, 41, 44, 47, 52, 54, 83, 104, 128, 148–151, 153–154, 156, 158, 163–164, 166, 168, 178, 185, 205, 275
- Risk:
- and active risk taking, 145–149
- with hard currency bonds, 178
- modeling, 203–204
- prepayment, 47–48
- and signal weighting, 195–196
- Riskless bonds, 31
- Risk premia, 36–50
- credit premium, 43–45, 70–83
- emerging markets, 49
- equity market, 50
- prepayment/complexity/volatility premium, 45–50
- private markets, 49
- term premium, 38–43, 57–70
- Robeco, 249, 251
- Scale, in primary markets, 225
- Scatter plots, 62–67, 73–81
- Scherer, B., 84
- SDG (sustainable development goals), 253, 254f
- Secondary markets, liquidity in, 226–228
- Securitized market, 45–48
- Security pricing, 2
- Security selection:
- Segmentation, market, 166–167
- Shared monetary policy framework, 131–132
- Sharpe ratios, 11, 38, 48
- Signals, investment, see Investment signals
- Slope assets, 118–119, 128–130, 129f
- Sortino ratios, 54
- Spread, 43
- Strategic asset allocation, 29–55
- diversification benefit of fixed income, 50–54
- drivers of returns, 29–36
- home bias in, 25–27
- in low interest environments, 54–55
- and risk premia, 36–50
- Substitutions, 228–229
- Sustainability, 167, 206, 228, 233–256
- country‐level, 249–251
- with credit‐sensitive assets, 235–249
- interest in, 233–234
- with rate‐sensitive assets, 249–256
- Sustainable development goals (SDG), 253, 254f
- Swaminathan, B., 248
- Systematic fixed income investing:
- with credit long/short portfolio, 264–266
- with emerging market bond portfolio, 266–268
- failure in, 272–273
- with Global Aggregate benchmarked portfolio, 268–270
- with HY corporate bond portfolio, 263–264
- with IG corporate bond portfolio, 260–261
- with long duration IG corporate bond portfolio, 261–263
- size of universe for, 13–15
- successful strategies for, 259–272
- with Unconstrained Bond portfolio, 268–272
- Systematic investors:
- approach of, 12–13
- belief in market efficiency for, 276–277
- communication for, 274–275
- defined, 8
- discretionary vs., 8–12, 9f
- expectations about roles/responsibilities of, 273–274
- Systematic managers, 11
- Tactical asset allocation:
- adding breadth for, 85–87
- and data mining, 83–85
- market timing (see Market timing)
- remaining fully invested for, 87–88
- Taylor‐Rule, 41
- TC (transfer coefficient), 204
- Technical default, 150–151
- Term premium:
- market timing, 57–70
- and yields, 38–43
- Term spread, 60
- Thapar, A., 130
- Tilts, out‐of‐benchmark, 91–92
- Timing, market, see Market timing
- TPR (true positive rate), 151
- TRACE (trade reporting and compliance engine), 166, 189
- Trade lists, in system investing, 10
- Trade reporting and compliance engine (TRACE), 166, 189
- Trade‐size constraints, 205
- TradeWeb, 220
- Transaction cost analysis, 230–231
- Transfer coefficient (TC), 204
- Treasury bill, 60–61
- True positive rate (TPR), 151
- TruMid, 220
- Tuna, İ., 150–151, 153–154
- Turnover budget, 204–205
- UCITS funds, 188
- United Nations Principles or Responsible Investing (PRI), 234
- University of Pennsylvania Wharton School, 114
- US bonds, 51–52
- US Federal Reserve, 40
- US stocks, 51–52
- Value:
- and data mining, 84
- of developed market corporate bonds, 150–156, 159f, 161f, 162f
- of emerging market fixed income, 179–180
- extension, 69–70
- of government bonds, 120–121
- grouping, with other signals, 193
- measuring, 60, 61, 72–73, 74f, 77f
- Van Zundert, J., 185
- Variance, 33–34
- Volatility premium, 45–50
- Yield, 18–20
- and carry, 60
- and interest rates, 55
- zero‐coupon, 113–118, 114f–117f
- Zero‐coupon yield, 113–118, 114f–117f
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