The shift from active to indexing is one of the more enduring investment trends over recent decades, but this move has been slower to gain traction in the fixed income arena.
Better performance by active managers versus their respective benchmarks, particularly in multi-sector active strategies, such as investment grade short, intermediate and global income funds, is likely behind the slower shift to indexing.
Active global aggregate managers have generated excess returns of 48 basis points (net of fees) per annum over the last 20 years, but performance typically lags during market selloffs and rallies in marketrecoveries.
One of the more enduring trends we’ve seen across markets has been the shift from active managers into passive — this is a phenomenon that has been relentless across both equities and fixed income (see Figure 1). At the end of 2020, passive investment accounted for about 50% of total equity investment (based on the US fund universe), but only about 35% of total fixed income. The shift to fixed income indexing has lagged equities historically, and that continues to be the case, with slower adoption being something that can be partly attributed to it being generally harder to replicate fixed income indices given the large number of securities. However, we believe that relative performance (after fee considerations) has been the main reason for the comparatively slower move to indexing in fixed income.
This information is for informational purposes only, not to be construed as investment advice or a recommendation or offer to buy or sell any security. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. There are no guarantees regarding the achievement of investment objectives, target returns, portfolio construction, allocations or measurements such as alpha, tracking error, stock weightings and other information ratios. The views and strategies described may not be suitable for all investors. SSGA does not provide tax or legal advice. Prospective investors should consult with a tax or legal advisor before making any investment decision. Investing entails risks and there can be no assurance that SSGA will achieve profits or avoid incurring losses.
Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted.
Images of NYSE Group, Inc. are used with permission of NYSE Group, Inc. Neither NYSE Group, Inc. nor its affiliated companies sponsor, approve of or endorse the contents of this program. Neither NYSE Group, Inc. nor its affiliated companies recommend or make any representation as to possible benefits from any securities or investments.