Active vs Passive: In credit, indexes equal opportunity

In April, more than 1,000 bonds worth over $300 billion will vanish from the Bloomberg Barclays U.S. Aggregate Index.

Their disappearance reflects market dynamics that tend to benefit active fixed income managers with robust research processes while putting passive investment managers at a disadvantage.

Passive managers who track the bond benchmark will have to sell these bonds when the issuer disappears from the benchmark – even though their fundamental value may not immediately change. Selling, of course, tends to de- press prices. And this can create opportunities for active investment managers to potentially buy at more attractive prices.

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