Free from benchmark limitations 

A flexible, active approach to fixed income investing starts with the ability to differ significantly from a benchmark index. The freedom to construct a portfolio with different sector, geographic or security weights vs. the benchmark is critical for both alpha generation and risk management.

For example, indices like the Bloomberg US Aggregate Bond Index are constructed based on the amount of debt outstanding, which means the largest weights often go to the most indebted issuers—typically governments and large investment grade corporations. Concentration in these issuers can lead to suboptimal risk-return profiles, especially when interest rates rise, or credit spreads widen. Index investors are heavily exposed to sectors with the greatest debt outstanding, not necessarily those offering the best value or strongest fundamentals. Flexible strategies can allocate to areas with better fundamentals or more attractive valuations, building portfolios that are more balanced and less vulnerable to shocks in any one part of the market.

Dynamic in changing markets, offering diversification and risk management

Strategies that can adapt quickly to changing market conditions have an advantage over passive or benchmark-focused strategies and provide a valuable tool for investors navigating uncertainty. Flexible managers are empowered to respond to shifts in monetary policy, geopolitical events or changes in market structure by investing across a much broader universe, including global high yield, emerging markets, securitized assets and off-benchmark opportunities.

Managers of flexible strategies can also actively manage key risks such as duration, credit exposure and sector allocations based on their macroeconomic views and market conditions. For example, a manager anticipating rising rates can reduce portfolio duration while another expecting spreads to widen can add credit protection. Diversification across sectors, geographies and credit qualities—beyond the weightings in the index—helps reduce concentration risk and can improve portfolio resilience during market stress.

Potential for higher returns

The ability to invest in opportunities wherever they arise increases the potential to deliver higher risk-adjusted returns over time. Flexible strategies allow managers to pursue alpha in segments of the market that are often overlooked and exploit market inefficiencies. By expanding the opportunity set beyond the index, managers can invest in off-benchmark securities that offer attractive yields or capital appreciation potential.

Benefits of a flexible fixed income strategy

Flexible fixed income strategies empower managers to pursue the best opportunities across the global bond market, unconstrained by the limitations of traditional benchmarks. By avoiding concentration in the most indebted issuers and expanding the opportunity set, these strategies offer enhanced diversification, active risk management and the potential for superior returns. For investors seeking flexibility and resilience in their fixed income portfolios, these strategies offer a dynamic approach to bond investing.