Hefty swap bets fail to lift Total Return Fund

24 May 2018/No Comments
By Nick Dunbar

What does a bond mutual fund do when yields start to rise, and longer-dated bonds lose value? For a passive fund the answer is nothing. It must track its benchmark – nothing more, nothing less. Investors are free to control their exposure by switching to shorter maturity funds, and with ETFs, that is exactly what they have been doing.


Data source: IHS Markit

For active funds, there is the potential to deviate from the benchmark to mitigate losses from rising yields, and perhaps add some alpha as well – and prevent investor outflows. No asset manager has been more aggressive in attempting to manage rising rate beta than Pimco, and this can be seen in the gap between the duration of its bond funds and their benchmarks.

With fund disclosures being added to the Risky Finance asset management tool, we are starting to assess the strategies of some well-known funds.

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