Did you know…
In recent years, fixed income ETFs have become increasingly more popular as a simple way to get exposure to the fixed income market without having to pay for the active management fee. But did you know that in bond indexes that are weighted by market capitalizations, the issuer is weighted according to their debt appetite.
Investors then hold bonds that the market has determined, by cap size. Therefore, other than Treasuries, companies that are financially very deep in debt end up being the biggest component of your passive bond index fund - not determined by their underlying value, duration, yield curve positioning, sector selection, debt service, or credit worthiness. So in the end, investors end up monitoring bond defaults on their own.
Source: Eaton Vance & Morningstar as of 2/28/17
What are we thinking?
Credit analysis, yield curve positioning, and professional bond management are just some of the ways that active management can add more value over time. While they may not outperform the indices every year, wouldn’t you feel more comfortable knowing that an experienced professional is monitoring these risks versus having to monitor them on your own?
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Past performance is not a guarantee of future results. Indices are unmanaged and cannot accommodate direct investment. Themes assigned as per Roosevelt Investments’ evaluation. Risk tools may include cash or other securities that we believe possess a low or inverse correlation to the overall market.
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