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Fixed Income Active Strategies
Sep 1, 1996
This article investigates how, conceptually, to succeed at fixed income active management. Drawing on the basic framework for active management established in "Seven Quantitative Insights Into Active Management: Insight Two" (this issue), we will discuss how to succeed at active management, and then make some empirical observations about fixed income managers. The key to active management is the information ratio. Given typical information ratios, fees and expenses, and active risk levels, net outperformance for fixed income managers is difficult. Two separate arguments--one based on active management fundamentals and one on empirical analysis of opportunities--both lead to the same conclusion: fixed income managers must use every possible opportunity to add value.