Some thoughts and takeaways from AQR podcast
- Traditional market-cap-weighted credit benchmark (e.g. Bloomberg Barclays Agg) excludes lots of corporate bonds. Active managers can generate excess returns by taking out-of-index exposure.
- There are lots of players in the fixed income market that are not price-sensitive or profit-driven, e.g. central bank reserve managers and commercial banks. That renders certain bonds persistently over or undervalued, which provides opportunities to generate alpha.
- Trading liquidity is low in corporate bonds. It could take a few days to find a buyer/seller of a particular bond. Hence active mangers provide value by realizing the transactions.
- Most credit data started in the 1980s, i.e. a relatively short history for systematic strategies. Therefore, it may take quite some time for systematic managers to catch up with active managers.
- Short history of data also reduces the effectiveness of quantitative analysis on regime change (e.g. secular bear market for bonds). That means judgment/discretion becomes more important.
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