Newest Data In: Active Managers Still Failing

September 12, 2014

Fixed Income

Putting the snark aside for a moment, fixed income is one of the places I actually waver in my general disdain for active management. It’s not that I think all bond managers are geniuses. Rather, I genuinely don’t like how most bond indexes are constructed.

Weighting by issuance, particularly in corporate bonds, has always struck me as a dumb way to go about investing. After all, if someone keeps asking me for money, I actually want to loan them less over time, not more. But bond indexes load up on the most indebted, and that’s troubling.

And in fact, SPIVA often shows that bond managers get it right more often than not in certain places. Just not necessarily where you expect. Consider corporates:


What this suggests is that active management really isn’t adding any value on long bonds in the corporate space, but has been highly successful when it comes to intermediate and short-term funds.

My only caution there is the choice of index. S&P uses the Lipper classification for mutual funds. Lipper’s “investment-grade” category is exclusively corporate issuers. Any fund that mixes Treasurys and corporates goes into a “multi-sector bond” bucket that SPIVA doesn’t include in its analysis.

The benchmarks SPIVA uses here, however, generally hold more than 50 percent U.S. Treasurys. Am I surprised that the Pimco Investment Grade Bond Fund (PIGIX) beat an index that’s half Treasurys? Not when we’ve been in a nearly default-free bond market, I’m not!

In other words, this “win” for active management is actually just the flaw in the SPIVA methodology.

And the junk bond managers? Things definitely look bad there.


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