AQR examines why active fixed income managers have outperformed benchmarks and argues much of the excess return stems from persistent high yield credit exposure rather than pure security selection. The paper questions whether investors are sacrificing diversification benefits by adding equity credit risk into allocations.
Superstar Investors
AQR
Research
13 Pages
Key Takeaways
Credit Exposure Dominance: Core Plus managers showed a 0.95 correlation with high yield excess returns, suggesting credit beta explained much of historical outperformance.
Diversification Tradeoff: Unconstrained bond managers generated a 1.27 information ratio from 2008 to 2017, though returns closely tracked equity sensitive credit markets.
Equity Managers Lagged: U.S. large cap active equity managers posted a negative 0.71 information ratio from 2013 to 2017 versus 1.08 for Core Plus managers.
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