Demand for active fixed income has materially increased in 2023 due to a combination of secular and cyclical factors. Adoption is up due to institutions and advisors becoming more familiar with the new category, while recent data supports the notion that it can outperform passive at least in specific circumstances. From a cyclical perspective, higher rates and increased volatility are also leading to more demand for active fixed income products as managers have more latitude in terms of duration and credit risk.
AllianceBernstein recommends a systematic approach to fixed income in order to outperform benchmarks. It sorts through criteria to identify predictive factors which goes deeper than the traditional approach of duration, beta, and sector.
This criteria includes value, momentum, fundamentals, company financials, and historical market data. Many factors are only applied during specific market regimes when they have greater predictive power.
This strategy allows for increased diversification as returns are uncorrelated from benchmarks and other factors. They also typically have lower costs while allowing for greater customization to fit client needs. This sort of quantitative, factor-based investing is more prevalent in equities, but the company is looking to bring it to fixed income.
Finsum: AllianceBernstein recommends a systematic, quantitative approach when it comes to active fixed income. The key ingredient is dynamic weighing of quantitative factors.